Scottish independence would render £200bn oil and gas deal unaffordable, first ever cabinet meeting in Scotland will hear
David Cameron will use his first ever cabinet meeting in Scotland to promise a revolution in North Sea oil and gas extraction worth up to £200bn over two decades – but that this will only be affordable if the union stays together.
As the PM and his entourage make the trip to Aberdeen, he will set out steps to revive the industry, which has suffered declining production for years. His visit to Scotland comes as two new polls found a growing number likely to vote no to independence, with 37% for and 47-49% against.
Alex Salmond, the Scottish first minister, will hold a cabinet meeting just six miles from Cameron’s event on Monday, having criticised the prime minister for refusing to meet and debate the issue of independence with him. He has put the oil industry at the heart of his campaign, telling Scots that remaining reserves are worth £300,000 per person.
However, Cameron will try to undermine that claim by arguing that the “broad shoulders” of the UK government are needed to support North Sea oil and gas in the future.
Under plans to boost the industry, Cameron will agree to adopt all the recommendations of an independent report by Sir Ian Wood, a retired oil billionaire, who believes the creation of a new regulator and more cooperation between companies could increase production by up to 4bn barrels.
Ed Davey, the energy secretary, has said the proposals could be an even bigger boost than the exploitation of shale gas, which senior Conservatives have hailed for its potential to bring down bills and increase energy security.
Cameron’s announcement implies that Scotland would be unable to sustain such a large increase in support for the industry as an independent country.
Downing Street stressed that the UK was “well placed to absorb the shocks of oil price volatility that would dramatically affect a small country’s budget”.
The Scottish government backs the creation of a new Aberdeen-based oil and gas regulator but strongly disputes that the combined might of the union is needed to sustain the industry. The UK government has already provided tax breaks to the oil industry for difficult fields and to help with decommissioning old ones. There was a sharp fall in tax receipts from the North Sea industry in the most recent official treasury figures, but the government insists its incentives are beginning to attract billions of pounds in investment in getting more oil out of the ageing fields.
The Scottish Tories warned that Scots would face much higher VAT payments after independence, perhaps worth billions of pounds, because they would lose the UK’s historic opt outs that allowed zero VAT rates on children’s clothes and shoes, books, charities, new buildings and industries such as ship building.
The Scottish Tory leader, Ruth Davidson, published a letter from the head of the European commission’s VAT unit in Brussels that said new EU member states had to apply a minimum 15% VAT rate on nearly all its goods.
Donato Raponi, from the commission’s taxation and customs directorate, told the Tory MEP Struan Stevenson that new members were able to negotiate transition arrangements after joining, but would only be allowed “one or two” reduced rates on a permanent basis, and then no lower than 5%.
Speaking as both pro- and anti-independence camps traded fresh claims and counter-claims, Davidson said: “No ifs, no buts – those are the rules for any new member.
“It’s not just Scottish families that would be affected, but Scottish business too. None of this has been spelled out by the SNP. We now need Salmond to tell us fairly and squarely – what will VAT rates be on all these household items after independence?”
In turn, John Swinney, the Scottish finance secretary, stepped up pressure on Cameron by warning that UK Treasury would face higher debt interest payments of up to £5.5bn a year if it vetoed a currency union with an independent Scotland.
Swinney backed up Salmond’s claims that an independent Scotland would be under no obligation to pay its share of the UK’s debt mountain – due to reach £1.6tn by 2016, if the UK rejected his “fair and responsible” proposal for a new sterling area with Scotland.
He said that would add an extra £130bn worth of debt on the UK’s books, which in turn would mean extra annual interest payments of £4bn to £5.5bn a year – equivalent to an extra 1p on income tax.
Arguing that would mean “a significant and unnecessary cost to taxpayers” in the rest of the UK, Swinney said: “This is just one of the reasons, alongside the costs that rejecting a currency area would impose on business in the rest of the UK, that the Treasury will drop this bluff and bluster the minute the campaign is over.”
Business leaders have been reluctant to speak out about the independence debate but a survey published by the Financial Times from headhunters Korn Ferry showed that 65% of the FTSE 100 chairmen who participated said it would be bad for British business. Some 17% said independence would be good and 7% said it would be “very good”. Korn Ferry spoke to 29 chairmen representing 32 FTSE 100 companies.
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