Economic forecasts 'pie in the sky'

Updated: 

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Scottish Government forecasts on the economy of an independent Scotland are "pie in the sky" and have been drawn up on the "back of a fag packet", the Chief Secretary to the Treasury has claimed.

Danny Alexander said the economic arguments from the Scottish Government for leaving the UK were based on "massively optimistic" projections about the amount of cash that could be raised from North Sea oil and gas.


He added that claims that Scots could be £1,000 a year better off in the long term in an independent Scotland were "based on pretty heroic assumptions about growth and productivity".

The UK Government minister hit out at the economic case being put forward by the Scottish Government when he appeared before a Holyrood committee.

First Minister Alex Salmond has insisted the country could be £5 billion a year better off in 15 years' time without having to raise taxes if Scots vote for independence this September.

That was based on a separate Scotland increasing productivity, employment, and growing its population.

But Mr Alexander told the Scottish Parliament's Economy Committee: "The Scottish Government's forecasts were based on pretty heroic assumptions about growth and productivity, way above and beyond anything that has been achieved in similar regimes.

"In order to make their sums add up they would need to see growth consistently one percentage point above the UK every year for about 40 years, which is totally unrealistic."

He added: "In any set of circumstances where you're putting forward costings, you're trying to make a reasoned economic case, it is preferable to be cautious, then if you are surprised on the upside that is welcome.

"Coming up with the most optimistic set of numbers you can possibly imagine off the back of a fag packet and then saying that's your central assumption for economic projections seems to me to be rather misleading."

He also dismissed Scottish Government forecasts over oil revenues.

Its figures, published last month, said the income raised from oil and gas could be between £2.9 billion and £7.8 billion in 2016/17.

Scottish Finance Secretary John Swinney said then that the central prediction showed the country can benefit from £34.3 billion over the next five years - equal to almost £7 billion a year.

The Office for Budget Responsibility (OBR), which was set up by the UK Government, makes far lower predictions, expecting just £15.8 billion over the five years.

Mr Alexander said the Scottish Government forecasts "rely on North Sea revenues being consistently more than double the forecasts made by the independent Office for Budget Responsibility".

He said SNP ministers had made those projections "despite the independent Office for Budget Responsibility forecasts since 2010 themselves having over-estimated UK oil revenues by 20% on average".

He told the committee: "The Scottish Government aren't saying 'Let's look at the OBR forecasts that have been 20% over-optimistic, let's take a cautious projection so we can offer secure forecasts'.

"They're saying 'Let's look at the OBR forecasts, which have proved to be a wee bit higher than the actual amount of revenue received, let's double them, let's think of a number then double them', then say that's what will happen in an independent Scotland.

"It's total pie in the sky.

"What that means is that any of the Scottish Government projections for independence are wrong because they are based on massively optimistic projections, they are optimistic in comparison to forecasts which themselves have been shown to be on the optimistic side."

Deputy First Minister Nicola Sturgeon later told the committee that the Scottish Government had set out "very robust projections", which she insisted "withstand scrutiny".

She said: "The starting point for us in this debate is that Scotland is a rich country, an extremely wealthy country, blessed with extraordinary resources both human and natural. An independent Scotland per head of population would be the 14th richest country in the OECD.

"The projections we published two weeks ago on Scotland's public finances show that fiscally we would begin life as an independent Scotland in at worst roughly the same, at best slightly better, position than the UK."

Labour MSP Richard Baker asked Ms Sturgeon, who was being questioned alongside Finance Secretary John Swinney and Dr Gary Gillespie, the Scottish Government's chief economist, when ministers would publish the assessment of set-up costs for an independent Scotland.

Ms Sturgeon said: "The work we have done around all these issues is in the White Paper and I can point to several different parts that covers this territory."

She referred to analysis released by the Treasury last month which cited a possible cost of £2.7 billion for setting up a new state which Professor Patrick Dunleavy, of the London School of Economics, later said was "bizarrely inaccurate".

"We wouldn't want to be in the same territory as the UK Government in mis-briefing anybody," she said. "I think it a reasonable question to ask - if the Treasury had been capable of putting such a figure on this, then why did they feel the need to make one up and pluck a figure out of thin air which was criticised by the author the work was based on whose view was that it was over- estimated by a figure of 12?"

Ms Sturgeon told the committee that much of the infrastructure of delivering services which are currently reserved already exists in Scotland.

She said: "I'll give one example - every single pension paid to a state pensioner in Scotland is administered from Scotland, from one of two pension centres. Most of the UK welfare system as it relates to people in Scotland is administered in Scotland, so that infrastructure exists. We are not in a position of having to set that up.

"There will be of course a wider negotiation around the totality of UK assets and the share that Scotland will get. Some of those assets will transfer, others it wouldn't be practical to do that, so there would be a financial consideration required to be made.

"The Treasury is a good example of the dangers that befall you when you try to put a definitive cost on something which would be subject to the kind of negotiation and kind of factors I have spoke about."

Mr Swinney added: "The White Paper essentially encapsulates what we consider to be the most effective explanation of how all of these issues would be taken forward.

"What we have tried to do is set out the basis in which we can see the transfer of additional functions coming into the Scottish Government, how we would handle that and how essentially elements of that would be subject to negotiation on the precise operational arrangements and also the share of assets.

"Therefore to put a specific number on that - we can set out the framework, we can set out the methodology, it's all set out in the White Paper in as much detail as we can. But we cannot properly put a precise number into that analysis if it is going to be subject to negotiation and discussion with the UK Government about share of assets and operational transfer of functions."

"Where we can be very specific about the type of arrangements we envisage we will put detail in place."

Committee convenor Murdo Fraser asked Dr Gillespie if his office had done work on the set up costs.

Dr Gillespie said: "All the work that's been done is reflected in the White Paper and the work the Cabinet Secretary and the Deputy First Minister have outlined."

The Tory MSP asked: "Have you done detailed work on costings that do not appear in the White Paper?"

"No," he replied.