Sunk: the price of oil and the dream of Scottish financial independence
Sunk: the price of oil and the dream of Scottish financial independence
Many Scots want to leave the UK and go it alone, but their hopes of financial independence have been dashed by the crashing price of oil. Patricia Nicol reports from Aberdeen, where the North Sea crisis is pouring cold water on calls for a second, post-Brexit referendum.
In the pub at Aberdeen’s Dyce airport, Martin, Davey and James are drinking to the end of another two-week shift offshore. It is just midday, they have been here since 9am, and are already “five or six Coors down”, slurs Davey, the youngest at 29. Do not judge them too harshly. Their original flight was cancelled. “Happens all the time now they’re half-empty,” says Martin. Aberdeen airport passenger numbers have dipped by a fifth in the past 18 months. Besides, what they are discussing is how well their pattern of two-weeks-on, two-weeks-off employment works with raising young families: Davey is expecting his first child.
Yet the trio, and their industry, face an anxious future. Of immediate concern is what will happen when their current project on an oil platform, 130 miles northeast of Aberdeen, Europe’s beleaguered oil capital, comes to an end later this summer. Now the Brexit vote has created further uncertainties. Will Britain’s oil and gas sector, striving to steady itself after 19 months of low oil prices and swingeing cuts, be hit by a UK recession? And what would be the long-term job prospects offshore for three likely lads from the English north if a second independence referendum took Scotland out of the UK?
Despite calls for that to happen post-Brexit, it is considered incredibly unlikely that Scotland could join Europe as an independent nation, as Spain and Belgium would be too worried about the precedent it would set for their own separatists. Whatever the future holds, it is already clear that there is much less work offshore than before oil prices crashed.
“Normally when you arrive at Bristow [the helicopter firm that ferries oil workers around the North Sea], it’s rammed,” says Martin. “The other morning there were eight people there. That’s when it hit me: it’s bad.” Helicopter traffic from Aberdeen airport has decreased by a quarter in the past year.
The worldwide collapse in the price of oil, due to a glut in production, means the energy industry is in the doldrums globally. In February of this year the price of a barrel of oil hit a 13-year low of $26, less than a quarter of the $110 fetched in 2011. The impact of this slide can be seen in the catastrophic freefalling of the Venezuelan economy and even in super-rich Saudi Arabia, where bonds have been issued for the first time. Far closer to home it has left the North Sea oil industry — operating in a mature base where drilling conditions are notoriously tough and costs high — dangerously vulnerable. At the time of writing, the price of a barrel of oil, following post-Brexit volatility and uncertainties in the Asian and American market, was $47. Until it steadies above $50 or $60, our offshore oil and gas industry — a saviour of the British economy in the 1970s and 1980s, and intrinsic to the financial viability of an independent Scotland — is in dire straits. Oil and Gas UK estimates that 120,000 British jobs will have gone by the end of this year.
“This is the equivalent of a steelworks being closed every week for the past year,” says Jake Molloy, regional organiser of the Rail, Maritime and Transport Union (RMT).
“In this industry it’s boom or bust, but this is the worst downturn I’ve seen,” says the billionaire industry veteran Sir Ian Wood, Scotland’s fourth-richest man, who turned his family’s modest fishing fleet into a global specialist supplier to the oil and gas sector.
Nicola Sturgeon wants a second referendum on Scottish independence
“If there is one industry that is strategic to the UK — because few things are more important than energy security — then it is this one,” says the Aberdeen entrepreneur Tom Smith, who in 2012 sold the company he founded, Nessco, for £31m. “The oil and gas industry is the UK’s biggest industrial success since the Second World War. Yet where are the politicians wringing their hands?” There has been anger in Aberdeen that Amber Rudd, the energy secretary until her recent appointment to home secretary in Theresa May’s cabinet reshuffle, didn’t make her first visit to the crisis-hit oil capital until last month — more than 12 months after taking up the energy post.
Molloy adds: “The population down south couldn’t care, because they’re filling up their cars with cheap petrol.”
I live down south and I care, but then Aberdeen is my birthplace and where my parents live. And I am a child of its oil industry. In 1971 I was born into a boomtown. Big oil was six years ahead of me: British Petroleum (BP) and Shell had opened offices there in 1965 to support their offshore exploration. In 1975, BP began pumping oil in the vast Forties field, 110 miles east of Aberdeen. By 1978, the Brent field was producing for Shell.
In the early 1960s Aberdeen had been a provincial town of stagnating industry and a declining population. Jeremy Cresswell, the long-serving energy editor of the Aberdeen-based Press and Journal (P&J), Scotland’s bestselling regional newspaper, recalls “grey granite, grey skies, grey sea, grey parents…”. Oil pumped life into the town. In 1971, the energy industry accounted for about 1,000 jobs in Scotland. By 1975 that figure had risen to 19,000, with at least a third of those jobs in the Aberdeen area. Suddenly, the tired old Granite City became a Klondike on the frontier of a brave new world. My mother still recalls the wonder with which she first gazed upon a double-denim-clad Texan oil worker in a 10-gallon hat putting his spurred cowboy boots through security at Dyce airport.
I also remember the excitement of foreigners arriving in vast numbers. An American school opened near our suburban home and, in town, a shop selling “candy”.
Our own family’s horizons widened. In 1977, my father left his career as a university pathologist to work as a doctor for BP. The only home I’d ever known was rented to Americans. We left the grey of Aberdeen for the white-hot bling of Abu Dhabi, moving to a company compound surrounded by desert scrub, and a privileged expatriate lifestyle of Indian domestic staff and weekends spent on speedboating trips to Persian Gulf desert islands.
I remember the excitement of foreigners arriving in vast numbers. An American school opened near our home and, in town, a shop selling ‘candy’
As a child, the Tehran hostage crisis felt more vivid to me than the winter of discontent. For my parents — my mother, then 36, the daughter of a Ravenscraig steelworker, and my father, 42, a grammar-school boy who had shared a room with his younger brother all the way through university — this was a transformative period. In 1980, my mother had a walk-on part in a BBC documentary, The Philpott File: Oilman’s Wife. When asked what she missed most about home, she ventured hesitantly: “Marks & Spencer?” They were having the time of their lives.
The lives of our family friends who stayed in Aberdeen changed, too. House prices soared. Businesses thrived. Aberdeen became more cosmopolitan: the petro-economist Professor Alex Kemp recalls a Shell executive telling him a few years ago that the Dutch giant employed 40 different nationalities in its Aberdeen office.
There were brief downturns. Many of the Americans returned home abruptly after the oil-price collapse in 1986. There was another recession in the 1990s. However, Aberdeen, with high employment, felt less buffeted by the deprivation that blighted Scotland’s other cities of Glasgow, Dundee and, to a lesser extent, Edinburgh, in the Thatcherite post-heavy-industry era. But there is no such security in the current climate.
“Everyone in Aberdeen knows someone who has lost their job,” says Callum McCaig, the 31-year-old Scottish National Party MP for Aberdeen South. “I know people, unemployed for months, seeking work all over the world. For folks my age, it’s the first major downturn they have experienced.”
For Aberdonians, this is a grim reversal of fortune. The Granite City, or the Silver City with the Golden Sands if you prefer, was until very recently the richest place in Britain outside London and its commuter belt. The well-heeled suburbs of Bieldside and Cults were said to have the UK’s highest density of millionaires after Kensington. Barely bruised by the 2008 global recession, its oil and gas industry was credited as one of the drivers of the UK’s recovery. In 2011-12, the UK Treasury received £10.9bn from a then heavily taxed oil and gas industry. But in 2015-16, the government recorded tax losses of £24m from the sector, its worst performance since records began nearly 50 years ago. The continuing viability of North Sea oil — 42bn barrels have come out and 23bn remain is the mantra — was central to the Scottish National Party’s economic projections of how Caledonia would thrive if Scots voted for independence in 2014. Those dreams now look threadbare.
The work was well paid. In 2014 an Ernst & Young survey reported the average salary in the oil and gas sector was £64,000, almost 2½ times the UK average of £26,500. By then, there were already warnings that such wages were unsustainable and Aberdeen’s economy was severely overheated, but few foresaw the velocity with which North Sea oil was about to crash after a decade-long bull run.
In June, BP’s chief economist, Spencer Dale, predicted the oil price might not recover until 2018. Quite why there is a vast surplus of barrels of crude being held in harbour storage and offshore supertankers across the world is a complex geopolitical blame game. Many hold the Opec kingpins Saudi Arabia responsible. The Saudis, along with Iraq, upped production in what could yet prove a self-harming attempt to maintain market share. They were galvanised by the US shale bonanza: at current low prices it has been cheaper for the petrolhead US to import oil than to frack for it at home.
Yet, it is cheaper and easier to frack for oil in the US than it is to recover it from the dangerous depths of the North Sea. “A big fear for me is that oil prices will rally enough for the global industry to begin to recover, but then increased US shale production will keep those prices in check, resulting in a recovery that, this time, bypasses Aberdeen,” says Tom Smith.
That is a grim prospect for the northeast of Scotland — already mired in a challenging localised recession and facing industrial action from North Sea workers over 30% pay-rate cuts. A sector that only two years ago provided direct and indirect employment for 450,000 people across the UK, with Aberdeen as its hub, has now contracted by more than a quarter. Companies have mothballed North Sea projects: Oil and Gas UK, the offshore oil and gas industry association, says the number of exploratory and appraisal wells drilled in 2016 could be less than half the number drilled in 2015.
In the past four decades, what are effectively small towns have been built in the hazardously deep, rough and freezing waters of the North Sea: vast platforms that employ everyone from unskilled cleaners to chefs, daring climbers, deep-sea divers and technical engineers, with each one of those platforms served by a logistical chain of supply vessels and helicopters. “They are an astonishing engineering feat in very rough seas,” the Texan Dick Wilson, one of the 1960s pioneers of North Sea oil exploration, has said. “We always knew it would be more difficult than going to the moon.”
“If there is one industry that is strategic to the UK — because few things are more important than energy security — then it is this one,” says the Aberdeen entrepreneur Tom Smith, who in 2012 sold the company he founded, Nessco, for £31m. “The oil and gas industry is the UK’s biggest industrial success since the Second World War. Yet where are the politicians wringing their hands?” There has been anger in Aberdeen that Amber Rudd, the energy secretary until her recent appointment to home secretary in Theresa May’s cabinet reshuffle, didn’t make her first visit to the crisis-hit oil capital until last month — more than 12 months after taking up the energy post.
Molloy adds: “The population down south couldn’t care, because they’re filling up their cars with cheap petrol.”
I live down south and I care, but then Aberdeen is my birthplace and where my parents live. And I am a child of its oil industry. In 1971 I was born into a boomtown. Big oil was six years ahead of me: British Petroleum (BP) and Shell had opened offices there in 1965 to support their offshore exploration. In 1975, BP began pumping oil in the vast Forties field, 110 miles east of Aberdeen. By 1978, the Brent field was producing for Shell.
In the early 1960s Aberdeen had been a provincial town of stagnating industry and a declining population. Jeremy Cresswell, the long-serving energy editor of the Aberdeen-based Press and Journal (P&J), Scotland’s bestselling regional newspaper, recalls “grey granite, grey skies, grey sea, grey parents…”. Oil pumped life into the town. In 1971, the energy industry accounted for about 1,000 jobs in Scotland. By 1975 that figure had risen to 19,000, with at least a third of those jobs in the Aberdeen area. Suddenly, the tired old Granite City became a Klondike on the frontier of a brave new world. My mother still recalls the wonder with which she first gazed upon a double-denim-clad Texan oil worker in a 10-gallon hat putting his spurred cowboy boots through security at Dyce airport.
I also remember the excitement of foreigners arriving in vast numbers. An American school opened near our suburban home and, in town, a shop selling “candy”.
Our own family’s horizons widened. In 1977, my father left his career as a university pathologist to work as a doctor for BP. The only home I’d ever known was rented to Americans. We left the grey of Aberdeen for the white-hot bling of Abu Dhabi, moving to a company compound surrounded by desert scrub, and a privileged expatriate lifestyle of Indian domestic staff and weekends spent on speedboating trips to Persian Gulf desert islands.
I remember the excitement of foreigners arriving in vast numbers. An American school opened near our home and, in town, a shop selling ‘candy’
As a child, the Tehran hostage crisis felt more vivid to me than the winter of discontent. For my parents — my mother, then 36, the daughter of a Ravenscraig steelworker, and my father, 42, a grammar-school boy who had shared a room with his younger brother all the way through university — this was a transformative period. In 1980, my mother had a walk-on part in a BBC documentary, The Philpott File: Oilman’s Wife. When asked what she missed most about home, she ventured hesitantly: “Marks & Spencer?” They were having the time of their lives.
The lives of our family friends who stayed in Aberdeen changed, too. House prices soared. Businesses thrived. Aberdeen became more cosmopolitan: the petro-economist Professor Alex Kemp recalls a Shell executive telling him a few years ago that the Dutch giant employed 40 different nationalities in its Aberdeen office.
There were brief downturns. Many of the Americans returned home abruptly after the oil-price collapse in 1986. There was another recession in the 1990s. However, Aberdeen, with high employment, felt less buffeted by the deprivation that blighted Scotland’s other cities of Glasgow, Dundee and, to a lesser extent, Edinburgh, in the Thatcherite post-heavy-industry era. But there is no such security in the current climate.
“Everyone in Aberdeen knows someone who has lost their job,” says Callum McCaig, the 31-year-old Scottish National Party MP for Aberdeen South. “I know people, unemployed for months, seeking work all over the world. For folks my age, it’s the first major downturn they have experienced.”
For Aberdonians, this is a grim reversal of fortune. The Granite City, or the Silver City with the Golden Sands if you prefer, was until very recently the richest place in Britain outside London and its commuter belt. The well-heeled suburbs of Bieldside and Cults were said to have the UK’s highest density of millionaires after Kensington. Barely bruised by the 2008 global recession, its oil and gas industry was credited as one of the drivers of the UK’s recovery. In 2011-12, the UK Treasury received £10.9bn from a then heavily taxed oil and gas industry. But in 2015-16, the government recorded tax losses of £24m from the sector, its worst performance since records began nearly 50 years ago. The continuing viability of North Sea oil — 42bn barrels have come out and 23bn remain is the mantra — was central to the Scottish National Party’s economic projections of how Caledonia would thrive if Scots voted for independence in 2014. Those dreams now look threadbare.
The work was well paid. In 2014 an Ernst & Young survey reported the average salary in the oil and gas sector was £64,000, almost 2½ times the UK average of £26,500. By then, there were already warnings that such wages were unsustainable and Aberdeen’s economy was severely overheated, but few foresaw the velocity with which North Sea oil was about to crash after a decade-long bull run.
In June, BP’s chief economist, Spencer Dale, predicted the oil price might not recover until 2018. Quite why there is a vast surplus of barrels of crude being held in harbour storage and offshore supertankers across the world is a complex geopolitical blame game. Many hold the Opec kingpins Saudi Arabia responsible. The Saudis, along with Iraq, upped production in what could yet prove a self-harming attempt to maintain market share. They were galvanised by the US shale bonanza: at current low prices it has been cheaper for the petrolhead US to import oil than to frack for it at home.
Yet, it is cheaper and easier to frack for oil in the US than it is to recover it from the dangerous depths of the North Sea. “A big fear for me is that oil prices will rally enough for the global industry to begin to recover, but then increased US shale production will keep those prices in check, resulting in a recovery that, this time, bypasses Aberdeen,” says Tom Smith.
That is a grim prospect for the northeast of Scotland — already mired in a challenging localised recession and facing industrial action from North Sea workers over 30% pay-rate cuts. A sector that only two years ago provided direct and indirect employment for 450,000 people across the UK, with Aberdeen as its hub, has now contracted by more than a quarter. Companies have mothballed North Sea projects: Oil and Gas UK, the offshore oil and gas industry association, says the number of exploratory and appraisal wells drilled in 2016 could be less than half the number drilled in 2015.
In the past four decades, what are effectively small towns have been built in the hazardously deep, rough and freezing waters of the North Sea: vast platforms that employ everyone from unskilled cleaners to chefs, daring climbers, deep-sea divers and technical engineers, with each one of those platforms served by a logistical chain of supply vessels and helicopters. “They are an astonishing engineering feat in very rough seas,” the Texan Dick Wilson, one of the 1960s pioneers of North Sea oil exploration, has said. “We always knew it would be more difficult than going to the moon.”
Patricia Nicol’s parents in Abu Dhabi, during the oil boom
The RMT representative Molloy worries that the industry’s current 40% cost-cutting measures will affect safety — the spectre of the 1988 Piper Alpha oil rig disaster, in which explosions and fires killed 167, always haunts these discussions. A report after the disaster found that the rig’s operator, Occidental Petroleum, had used inadequate maintenance and saftey procedures.
In Aberdeen, the impact of the cost-cutting is pervasive. Taxi drivers’ trade is down 40%. Hoteliers’ business has halved. Restaurants and small businesses have closed. Those that remain open have had to batten down the hatches. Stewart Spence, owner of the Marcliffe Hotel and Spa, one of only two five-star hotels in Aberdeen [the other is Donald Trump’s 19-bedroom golfing retreat, MacLeod House] has cut his room rates for the first time in 45 years. Even so, he has been running at an average 35-50% occupancy. Three of the weddings booked for this summer were cancelled because of oil-firm redundancies — two of the couples were co-workers.
Property — residential and commercial — has stalled. Neil Mitchinson of Edinburgh Asset Finance, a posh pawnbroker, is one of the few businessmen to have expanded into Aberdeen in the past year. “From early 2015 we were getting more inquiries from the northeast, with people driving south specifically to see us,” he says. These clients were all men, either company owners or offshore workers, seeking to release funds discreetly, often to cover a tax bill, a firm’s monthly payroll or as a bridging loan while a house sale went through. Most had watches to pawn — Mitchinson has handled several Rolex Daytonas, worth about £20,000 each, already this year. He has also provided loans against sports cars from Aberdeen — including a Ferrari — and a few expensive single “chunky” pieces of jewellery, worth £25,000-£30,000, that oilmen’s wives have offered up. “The proposition we have seems to suit that market at the moment,” he says. “We do no credit checking: the whole loan is pegged to the asset itself, which has distinct advantages if you’re not wanting to air your problems locally.”
A former oil executive, who has agreed to speak anonymously, says: “If we were the steel industry, if this was Port Talbot, then we would be on the news every day — we’re not getting as much attention as others.” A year ago he was made redundant from a job bringing in £150,000-£200,000 annually. His wife, who also worked for an oil company, has now been out of work for 20 months. “We feel locked out,” he says. “Nobody’s hiring. If you go for a more junior position, you’re overqualified. We’ve looked into moving, but even if the work was there we wouldn’t be able to sell or rent our house. Besides, there seems to be a stigma against oil-industry people transferring into other industries.”
This is borne out by the headlines: “Looking for a new job? Don’t tell anyone you work in the oil industry”, ran a recent story in Energy Voice, the P&J’s specialist sister title. “Those who don’t work in the industry think that everyone in Aberdeen has been raking in the big bucks for years and now they are feeling a bit of pain,” said the recruiter Colin Rawlinson.
There does seem a degree of schadenfreude in the rather gleeful reporting of out-of-work oil riggers turning to food banks, and executives pawning their Ferraris. I doubt the BBC would commission Oilman’s Wife today, but if they did the producers would have a different agenda. In the 1970s we were excited by oil — Dallas was the show that hooked television audiences globally. Today we are — in theory, if not practice — mortified by our consumption of fossil fuels. “People are in denial about how they fuel their lives,” says Deirdre Michie, the chief executive of Oil and Gas UK. “You put the switch on in the morning and you are not seeing the connection between the lights going on and the offshore platform.”
We have learnt by now what happens to a British town when it loses its sense of purpose. “The North Sea oil industry is in long-term decline,” says Professor Kemp. “It is a question of how gently or brutally this takes place. Reserves are still substantial — it’s whether they can be produced economically.”
This June, a PwC report concluded that the North Sea industry was dangerously at risk of “a rapid and premature decline” if government and industry did not pull together to “create one last cycle of success that will retain and generate jobs, stimulate growth and ensure security of energy supply”. It is that “one last cycle of success” that is key here.
Sir Ian Wood says that hitherto there was “complacency” about the 25-30 years hence when the oil would apparently run out. Now the prospect of a future where that oil is abandoned as economically unrecoverable — as happened with British coal a generation ago — has galvanised industrial and civic leaders.
Everyone in Aberdeen knows someone who has lost their job. I know people, unemployed for months, seeking work all over the world
You do not arrive from the south, into Aberdeen’s harbourside train station, and feel that this is a place sliding towards obsolescence. It may seem Panglossian, but new roads, shopping centres and office blocks are being built. Cranes abut the skyline. Aberdeen harbour, the oldest business in Britain, according to Guinness World Records, and still a successful one, has ambitious plans for a £415m expansion, seeing the decommissioning of oil rigs as part of its future — but also welcoming cruise ships.
Westminster and Holyrood have responded to lobbying for money — though all in the northeast feel more short-term support is needed. The Aberdeen City deal is a 10-year, £250m joint spend between the UK and Scottish governments. Sir Ian Wood is spearheading Opportunity North-East (ONE), a private-public partnership with hopes of boosting a diversification into agriculture, food and drink (the “punk” brewer BrewDog, Britain’s fastest-growing food and drink brand, is based in Ellon, Aberdeenshire) and life sciences and tourism. It also hopes to bolster Aberdeen’s existing reputation as a technological skills base.
Renewables are part of this picture, too. It is now recognised that Aberdeen’s future cannot be purely dependent on fossil fuels — and nor, of course, can the UK’s energy security. Plans have recently been approved for Europe’s largest floating wind-power plant offshore of Peterhead, just north of Aberdeen. The hope is that a native skillset could see the city retain its position as Europe’s energy capital, even after North Sea oil has been decommissioned.
But it now looks like UKplc could be decommissioned first.
On June 23, Aberdeen, like the rest of Scotland, voted to remain within the European Union. McCaig, a local MP, says that since the Brexit result his office has been inundated with calls and emails expressing “a huge degree of disbelief and genuine worry about the absence of any kind of plan from the UK government”. Scotland’s first minister Nicola Sturgeon quickly stepped forward to reassure voters that she would fight to retain Scotland’s EU membership, but that if those negotiations proved intractable she would call for a second vote on independence from Westminster (now dubbed indyref2). Post-Brexit polling suggested support for Scottish independence was running at 58%, the highest it has ever been.
Can Scotland afford to go it alone without oil? McCaig, the SNP’s Westminster spokesman on energy and climate change, is bullish. “There’s no denying we would have a stronger economic prospectus if oil was still at $100 a barrel. But with economic forecasters saying the UK is heading to a recession because of Brexit, the argument for the ‘broad shoulders’ of the UK that was put forward so forcefully in 2014 no longer holds true. The UK’s shoulders don’t look quite so broad now.”
Perhaps it is in our favour that this industry often works in not just physically hazardous, but often politically precarious regions, from Libya to Azerbaijan. “It’s true to say that all businesses would prefer an environment of relative certainty,” says Keith Brown, Scotland’s cabinet secretary for economy, jobs and fair work. “But the oil industry does work in lots of uncertain places around the world. We do have a remarkably stable environment here in the UK and Scotland.”
One certainty is that Aberdeen, Britain’s last boomtown, is still dangerously over-reliant on a single industry, and faces a challenging future. “We’re still losing good companies,” says Wood. He thinks the government could do more. “The banks are very powerful in this situation: a gentle word in the right ear could stop the worst of it.”After a recent visit to Aberdeen, Keith Brown relayed to Westminster that the loan guarantees promised to local firms in the last budget had not yet happened. “They need these in three months, not three years.”
Wood left the oil industry hoping to concentrate on the philanthropic work of his Wood Foundation, funding farmers in Africa and youth initiatives in Scotland. “The worst thing you can do for any young person is for them to wake up in the morning and think nobody wants them,” he says. So, when you next switch on the kettle for your morning brew, spare a thought for the North Sea oil worker, fretting about his future on a remote gale-blown platform, as the cold waves crash below.
A second referendum
How realistic is Scottish independence in the wake of Brexit and the oil crisis, asks Gillian Bowditch
The impact of the oil-price crash on Scottish nationalists’ dreams of independence was like an unexpected dousing in cold, grey, North Atlantic seawater. But even before the collapse, the economic questions around independence were troubling.
A hard-hitting paper from the Institute for Fiscal Studies (IFS) in the run-up to the referendum concluded that using the most optimistic oil forecasts from the Scottish government — Alex Salmond had predicted a “second oil boom”, with a price of $110 a barrel — declining oil production, an ageing population and lower rates of immigration would leave the government of an independent Scotland facing income tax rises of 9%, a 28% rate of VAT or billions of pounds in spending cuts for the next 40 years.
The concerns around currency — George Osborne had been insistent that Scotland could not enter into a monetary union with the rest of the UK (rUK) over the pound — and fears that Scotland could be locked out of the EU if it separated all helped to tip the result in favour of the union, with 55% voting to stay part of the UK and 45% voting for independence.
Independence was dead and the oil-price collapse was the final nail in the coffin. The inability of the SNP to hold on to its majority in the May 2016 Scottish parliamentary election, leading it to form a minority administration, added to the sense of nationalist gloom. Senior nationalists agreed that even if the polls showed consistent support of 60% for independence, another referendum would be unlikely before 2020.
Just 11 weeks on and the mood music around independence is much more melodic. Nicola Sturgeon had been canny enough to state in the SNP’s manifesto that a second independence referendum would only come about if there were a material change in circumstances, such as Scotland voting to stay in the EU while the rUK voted out.
In the aftermath of Brexit, the slaughter of the political career of David Cameron and the civil war raging in the Labour party, Sturgeon has become the most experienced leader in the UK. Her dignity and demeanour in the face of an EU referendum result, which saw Scotland vote overwhelmingly to stay in Europe — 62% for and 38% against — have impressed her one-time foes.
A slew of celebrities and policy wonks who supported Better Together, the campaign to stay in the UK, have jumped ship in recent weeks. The most recent to declare for independence is the Four Weddings and a Funeral actor John Hannah.
Most significantly, Sir Nicholas Macpherson, the former senior Treasury mandarin who incurred the wrath of Salmond with his criticism of independence, now believes there is a “golden opportunity” for nationalists to “reappraise their economic prospectus”. Macpherson’s vision is of a Scotland within the EU, attracting financial-services companies and other significant investment having established its own currency (the groat, anybody?), central bank, tax regime and smaller, more efficient state.
Talks are already under way about Scotland luring financial jobs from London in the event of the capital losing its passporting rights to sell financial products throughout the EU, but there is no shortage of obstacles to achieving this vision, not least the terms and timescale for an independent Scotland remaining in or joining the EU. Scotland’s ageing population is unchanged, with a projected 80% rise in the number of pensioners by 2060. And then there is oil.
John McLaren, the economist and professor of public policy at Glasgow University, points out that Scotland’s potential future fiscal-balance position has worsened since the referendum of September 2014 because of the disappearance of North Sea tax revenues. He estimates Scotland’s deficit would remain more than £9bn by 2019-20. The UK was expected to be in surplus by then, but that goal has been abandoned by the Treasury following the Brexit downturn.
“Scotland doesn’t have its own stable currency and our standalone deficit as a percentage of GDP would be larger than any existing EU country, including Greece,” says the businessman and political blogger Kevin Hague. “So even if the EU made ‘remain’ an option available for Scotland, it is likely to come with pretty significant conditions. Are we ready and willing to join the euro? Would we be willing to slash public spending by over 15%?”
In reality, the economic case for independence remains flakier than the Greggs steak bake beloved of a generation of Scots. What has changed is the waning attractiveness of being linked to an isolationist and economically flatlining rUK post-Brexit. When the alternative is crumbs from the poor Englishman’s table, a steak bake can look mightily appetising.
The RMT representative Molloy worries that the industry’s current 40% cost-cutting measures will affect safety — the spectre of the 1988 Piper Alpha oil rig disaster, in which explosions and fires killed 167, always haunts these discussions. A report after the disaster found that the rig’s operator, Occidental Petroleum, had used inadequate maintenance and saftey procedures.
In Aberdeen, the impact of the cost-cutting is pervasive. Taxi drivers’ trade is down 40%. Hoteliers’ business has halved. Restaurants and small businesses have closed. Those that remain open have had to batten down the hatches. Stewart Spence, owner of the Marcliffe Hotel and Spa, one of only two five-star hotels in Aberdeen [the other is Donald Trump’s 19-bedroom golfing retreat, MacLeod House] has cut his room rates for the first time in 45 years. Even so, he has been running at an average 35-50% occupancy. Three of the weddings booked for this summer were cancelled because of oil-firm redundancies — two of the couples were co-workers.
Property — residential and commercial — has stalled. Neil Mitchinson of Edinburgh Asset Finance, a posh pawnbroker, is one of the few businessmen to have expanded into Aberdeen in the past year. “From early 2015 we were getting more inquiries from the northeast, with people driving south specifically to see us,” he says. These clients were all men, either company owners or offshore workers, seeking to release funds discreetly, often to cover a tax bill, a firm’s monthly payroll or as a bridging loan while a house sale went through. Most had watches to pawn — Mitchinson has handled several Rolex Daytonas, worth about £20,000 each, already this year. He has also provided loans against sports cars from Aberdeen — including a Ferrari — and a few expensive single “chunky” pieces of jewellery, worth £25,000-£30,000, that oilmen’s wives have offered up. “The proposition we have seems to suit that market at the moment,” he says. “We do no credit checking: the whole loan is pegged to the asset itself, which has distinct advantages if you’re not wanting to air your problems locally.”
A former oil executive, who has agreed to speak anonymously, says: “If we were the steel industry, if this was Port Talbot, then we would be on the news every day — we’re not getting as much attention as others.” A year ago he was made redundant from a job bringing in £150,000-£200,000 annually. His wife, who also worked for an oil company, has now been out of work for 20 months. “We feel locked out,” he says. “Nobody’s hiring. If you go for a more junior position, you’re overqualified. We’ve looked into moving, but even if the work was there we wouldn’t be able to sell or rent our house. Besides, there seems to be a stigma against oil-industry people transferring into other industries.”
This is borne out by the headlines: “Looking for a new job? Don’t tell anyone you work in the oil industry”, ran a recent story in Energy Voice, the P&J’s specialist sister title. “Those who don’t work in the industry think that everyone in Aberdeen has been raking in the big bucks for years and now they are feeling a bit of pain,” said the recruiter Colin Rawlinson.
There does seem a degree of schadenfreude in the rather gleeful reporting of out-of-work oil riggers turning to food banks, and executives pawning their Ferraris. I doubt the BBC would commission Oilman’s Wife today, but if they did the producers would have a different agenda. In the 1970s we were excited by oil — Dallas was the show that hooked television audiences globally. Today we are — in theory, if not practice — mortified by our consumption of fossil fuels. “People are in denial about how they fuel their lives,” says Deirdre Michie, the chief executive of Oil and Gas UK. “You put the switch on in the morning and you are not seeing the connection between the lights going on and the offshore platform.”
We have learnt by now what happens to a British town when it loses its sense of purpose. “The North Sea oil industry is in long-term decline,” says Professor Kemp. “It is a question of how gently or brutally this takes place. Reserves are still substantial — it’s whether they can be produced economically.”
This June, a PwC report concluded that the North Sea industry was dangerously at risk of “a rapid and premature decline” if government and industry did not pull together to “create one last cycle of success that will retain and generate jobs, stimulate growth and ensure security of energy supply”. It is that “one last cycle of success” that is key here.
Sir Ian Wood says that hitherto there was “complacency” about the 25-30 years hence when the oil would apparently run out. Now the prospect of a future where that oil is abandoned as economically unrecoverable — as happened with British coal a generation ago — has galvanised industrial and civic leaders.
Everyone in Aberdeen knows someone who has lost their job. I know people, unemployed for months, seeking work all over the world
You do not arrive from the south, into Aberdeen’s harbourside train station, and feel that this is a place sliding towards obsolescence. It may seem Panglossian, but new roads, shopping centres and office blocks are being built. Cranes abut the skyline. Aberdeen harbour, the oldest business in Britain, according to Guinness World Records, and still a successful one, has ambitious plans for a £415m expansion, seeing the decommissioning of oil rigs as part of its future — but also welcoming cruise ships.
Westminster and Holyrood have responded to lobbying for money — though all in the northeast feel more short-term support is needed. The Aberdeen City deal is a 10-year, £250m joint spend between the UK and Scottish governments. Sir Ian Wood is spearheading Opportunity North-East (ONE), a private-public partnership with hopes of boosting a diversification into agriculture, food and drink (the “punk” brewer BrewDog, Britain’s fastest-growing food and drink brand, is based in Ellon, Aberdeenshire) and life sciences and tourism. It also hopes to bolster Aberdeen’s existing reputation as a technological skills base.
Renewables are part of this picture, too. It is now recognised that Aberdeen’s future cannot be purely dependent on fossil fuels — and nor, of course, can the UK’s energy security. Plans have recently been approved for Europe’s largest floating wind-power plant offshore of Peterhead, just north of Aberdeen. The hope is that a native skillset could see the city retain its position as Europe’s energy capital, even after North Sea oil has been decommissioned.
But it now looks like UKplc could be decommissioned first.
On June 23, Aberdeen, like the rest of Scotland, voted to remain within the European Union. McCaig, a local MP, says that since the Brexit result his office has been inundated with calls and emails expressing “a huge degree of disbelief and genuine worry about the absence of any kind of plan from the UK government”. Scotland’s first minister Nicola Sturgeon quickly stepped forward to reassure voters that she would fight to retain Scotland’s EU membership, but that if those negotiations proved intractable she would call for a second vote on independence from Westminster (now dubbed indyref2). Post-Brexit polling suggested support for Scottish independence was running at 58%, the highest it has ever been.
Can Scotland afford to go it alone without oil? McCaig, the SNP’s Westminster spokesman on energy and climate change, is bullish. “There’s no denying we would have a stronger economic prospectus if oil was still at $100 a barrel. But with economic forecasters saying the UK is heading to a recession because of Brexit, the argument for the ‘broad shoulders’ of the UK that was put forward so forcefully in 2014 no longer holds true. The UK’s shoulders don’t look quite so broad now.”
Perhaps it is in our favour that this industry often works in not just physically hazardous, but often politically precarious regions, from Libya to Azerbaijan. “It’s true to say that all businesses would prefer an environment of relative certainty,” says Keith Brown, Scotland’s cabinet secretary for economy, jobs and fair work. “But the oil industry does work in lots of uncertain places around the world. We do have a remarkably stable environment here in the UK and Scotland.”
One certainty is that Aberdeen, Britain’s last boomtown, is still dangerously over-reliant on a single industry, and faces a challenging future. “We’re still losing good companies,” says Wood. He thinks the government could do more. “The banks are very powerful in this situation: a gentle word in the right ear could stop the worst of it.”After a recent visit to Aberdeen, Keith Brown relayed to Westminster that the loan guarantees promised to local firms in the last budget had not yet happened. “They need these in three months, not three years.”
Wood left the oil industry hoping to concentrate on the philanthropic work of his Wood Foundation, funding farmers in Africa and youth initiatives in Scotland. “The worst thing you can do for any young person is for them to wake up in the morning and think nobody wants them,” he says. So, when you next switch on the kettle for your morning brew, spare a thought for the North Sea oil worker, fretting about his future on a remote gale-blown platform, as the cold waves crash below.
A second referendum
How realistic is Scottish independence in the wake of Brexit and the oil crisis, asks Gillian Bowditch
The impact of the oil-price crash on Scottish nationalists’ dreams of independence was like an unexpected dousing in cold, grey, North Atlantic seawater. But even before the collapse, the economic questions around independence were troubling.
A hard-hitting paper from the Institute for Fiscal Studies (IFS) in the run-up to the referendum concluded that using the most optimistic oil forecasts from the Scottish government — Alex Salmond had predicted a “second oil boom”, with a price of $110 a barrel — declining oil production, an ageing population and lower rates of immigration would leave the government of an independent Scotland facing income tax rises of 9%, a 28% rate of VAT or billions of pounds in spending cuts for the next 40 years.
The concerns around currency — George Osborne had been insistent that Scotland could not enter into a monetary union with the rest of the UK (rUK) over the pound — and fears that Scotland could be locked out of the EU if it separated all helped to tip the result in favour of the union, with 55% voting to stay part of the UK and 45% voting for independence.
Independence was dead and the oil-price collapse was the final nail in the coffin. The inability of the SNP to hold on to its majority in the May 2016 Scottish parliamentary election, leading it to form a minority administration, added to the sense of nationalist gloom. Senior nationalists agreed that even if the polls showed consistent support of 60% for independence, another referendum would be unlikely before 2020.
Just 11 weeks on and the mood music around independence is much more melodic. Nicola Sturgeon had been canny enough to state in the SNP’s manifesto that a second independence referendum would only come about if there were a material change in circumstances, such as Scotland voting to stay in the EU while the rUK voted out.
In the aftermath of Brexit, the slaughter of the political career of David Cameron and the civil war raging in the Labour party, Sturgeon has become the most experienced leader in the UK. Her dignity and demeanour in the face of an EU referendum result, which saw Scotland vote overwhelmingly to stay in Europe — 62% for and 38% against — have impressed her one-time foes.
A slew of celebrities and policy wonks who supported Better Together, the campaign to stay in the UK, have jumped ship in recent weeks. The most recent to declare for independence is the Four Weddings and a Funeral actor John Hannah.
Most significantly, Sir Nicholas Macpherson, the former senior Treasury mandarin who incurred the wrath of Salmond with his criticism of independence, now believes there is a “golden opportunity” for nationalists to “reappraise their economic prospectus”. Macpherson’s vision is of a Scotland within the EU, attracting financial-services companies and other significant investment having established its own currency (the groat, anybody?), central bank, tax regime and smaller, more efficient state.
Talks are already under way about Scotland luring financial jobs from London in the event of the capital losing its passporting rights to sell financial products throughout the EU, but there is no shortage of obstacles to achieving this vision, not least the terms and timescale for an independent Scotland remaining in or joining the EU. Scotland’s ageing population is unchanged, with a projected 80% rise in the number of pensioners by 2060. And then there is oil.
John McLaren, the economist and professor of public policy at Glasgow University, points out that Scotland’s potential future fiscal-balance position has worsened since the referendum of September 2014 because of the disappearance of North Sea tax revenues. He estimates Scotland’s deficit would remain more than £9bn by 2019-20. The UK was expected to be in surplus by then, but that goal has been abandoned by the Treasury following the Brexit downturn.
“Scotland doesn’t have its own stable currency and our standalone deficit as a percentage of GDP would be larger than any existing EU country, including Greece,” says the businessman and political blogger Kevin Hague. “So even if the EU made ‘remain’ an option available for Scotland, it is likely to come with pretty significant conditions. Are we ready and willing to join the euro? Would we be willing to slash public spending by over 15%?”
In reality, the economic case for independence remains flakier than the Greggs steak bake beloved of a generation of Scots. What has changed is the waning attractiveness of being linked to an isolationist and economically flatlining rUK post-Brexit. When the alternative is crumbs from the poor Englishman’s table, a steak bake can look mightily appetising.
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