True oil wealth hidden to stop Scottish independence

Douglas Fraser:

LABOUR ministers were warned in a secret Whitehall dossier 30 years ago of the powerful case for Scotland becoming independent with booming oil revenues, but the information was kept confidential by Harold Wilson's government to keep nationalism at bay.

The dossier, most of which was written by a leading government economist in 1974 and 1975, sets out how Scotland would have had one of the strongest currencies in Europe, attracting international capital into its banks in the same way as Switzerland.

It argued Scotland could quickly become one of Europe's strongest economies with "embarrassingly" large tax surpluses.

The balance-of-payments deficit that dogged Britain at the time would be "swamped" in Scotland by oil revenue and would "transform Scotland into a country with a substantial and chronic surplus".

The assessment demonstrates that the official Whitehall projections for oil tax revenue by 1980, six years after the document, were exceeded nearly 40 times over.

It shows officials advising ministers about how to "take the wind out of SNP sails", but they warned ministers to stop making any economic case against Scotland splitting from the UK, once oil revenues started flowing. The document refers to how the extent of the North Sea boom was being "disguised" by the Department of Trade and Industry.

The dossier details how a split of England and Scotland and a separate Scottish currency would force England into serious economic difficulties comparable to the 1930s slump, as it would have to import oil. It warned of an English backlash, and the possible use of force to ensure a share of the North Sea fields.

Released to the SNP under freedom of information legislation, it states that the scale of Scottish surpluses would be "embarrassing . . . and its currency would become the hardest in Europe, with the exception perhaps of the Norwegian kroner". The SNP said it had cost Scotland £200bn.

The key part of the dossier was prepared when Edward Heath's Tory government was about to lose power in 1974. Much of it was written by Gavin McCrone, one of Scotland's leading economists, who was working for the then Scottish Office. The following year – with Labour concerned by the SNP surge in the two elections of 1974, using the slogan "it's Scotland's oil" – Dr McCrone's projections for independence were circulated to a tight circle of Labour ministers and officials throughout Whitehall. Willie Ross was Scottish secretary.

Dr McCrone argued that if Scotland were independent with its own currency, it could expect to see incomes rise from a figure then clearly below English levels, probably surpassing its southern neighbour, with sustained growth for at least a decade and an end to "stop-go" cycles.

However, industrial manufacturing, then the backbone of the Scottish economy, would find it hard to compete. The suggested answer was that Scotland should use its surpluses to lend heavily to England and its other European neighbours. With proper management, "this situation could last for a very long time into the future".

When the paper was written, the UK was one year into the European Economic Community, later to become the European Union, and Dr McCrone's analysis pointed out that an independent Scotland would have equal access to all its markets. Whereas Scotland without oil would be ignored by large EEC countries, oil would give it considerable bargaining clout.

Kenny MacAskill, SNP deputy Holyrood leader, claimed the dossier countered arguments used at the time that "Scotland's too wee, the oil would run out and that it's not our oil".

He said: "A whole array of myths and lies have been exposed. This means that the Scottish Office and British government . . . knew the North Sea wasn't going to be dry as a bone by the 1980s, and that it would have transformed Scotland economically, socially and politically."

He argued Scotland had missed out on £200bn of revenue as a result of the secrecy of the 1970s. With oil prices at record highs and Treasury revenues from it soaring, the Lothian MSP added: "The North Sea is half full and not half empty, and oil is back on the Scottish political agenda."

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