McCrone Report: How the document influenced the Scotland Act

The National’s exclusive five-day series all this week is investigating the impact of the McCrone Report – a secret UK Government document compiled 49 years ago for the Scotland Office on energy policy – on the current cost of living crisis and a other issues affecting modern Scotland.

But what impact did the report have on the decision to reserve oil and gas to the UK Government when the Scotland Act, which brought devolution, was being drafted in the 1990s?

THE McCRONE REPORT

• 'Conspiracy' to hide extent of oil wealth from Scotland's people, Tom Devine says
• How Scotland's oil funded Thatcher's devastating transformation of Britain
• What is the Norwegian oil fund and how does it work?
• What it was like watching Westminster get rich from Scotland’s oil

Professor Alex Kemp (below), the leading expert in the history of North Sea oil and gas at Aberdeen University, said SNP electoral success in the mid-1970s and the potential wealth in the North Sea undoubtedly had an impact on the UK Government’s decision to keep powers over oil and gas in its hands even as devolution was being considered.

The author of the The Official History of Oil and Gas, Kemp told The National that essentially the Treasury insisted they needed the money. Kemp said: “It [the UK Government] could see that for a time there would be very big revenues and the Treasury wanted to have full control over them.

“It used the argument that it was the UK that had incurred all these huge deficits in the second half of the 1970s and into the 1980s. Deficits on the balance of favours, but also on the difference between public expenditure and taxation revenue, so that they would need all [the North Sea revenues].”

Kemp added that the Treasury was also opposed to the creation of an oil fund, similar to that which Norway set up in the 1990s to invest the surplus revenues of its oil and gas sector, because they said they needed the cash for “the greater good of the national economy”.

Kemp added: “They did come up with arguments which I set out in my book whereby they said, ‘Well, if we cut down the public borrowing, government borrowing, interest rates will come down, investment will go up, and we don’t need a fund, investment will increase anyway’.”

The Treasury took a similar approach during the late 1970s when the debate over whether or not to establish an oil fund dominated the public discourse, including whether money should be used to fund specific services.

Kemp said: “The Treasury was dead against it, it wanted all the money to go to it. They didn’t believe in what we economists call hypothecation, whether to health services or anything else.”

Kemp also said the UK Government fought numerous attempts to allow North Sea revenues to directly fund services in Scotland. He said: “When the North Sea revenues came along, they could have been attributed to the nearest land point, that would have been consistent with practice up till then.

“But the Scottish Office and the UK Government said no, so they created a new account, just for North Sea activities, quite separate from any region or Scotland or anywhere else. That’s an example of how nervous they were about the possible political effects.”

READ MORE: This is what Westminster doesn't want you to read: The McCrone Report in full

Looking back to an incident in the 1970s, Kemp noted an assessor for the then-Grampian Regional Council (GRC) said the authority wanted to levy rates on the oil platforms near the council’s land area, which would have included the Forties field platform. The offshore oil field was brought on stream in 1975 and produced more than 41,000 barrels of oil per day, becoming the UK’s second-biggest oil field by production in 2013. The field is now considered “mature” and has paused production while it undergoes “further development” to expand its operation beyond 2030.

GRC’s reasoning for this proposal was that the policing costs were the second most expensive in Scotland, behind only those due to the Royal Family’s Balmoral estate in Aberdeenshire. Kemp said: “The argument was that the council had to provide police protection and also health service for the installations, and that’s true to this very day. They argued that it was only right that should be paid.

“This again caused a huge fuss and the Scottish Office rushed through the UK Parliament primary legislation, saying local authorities can only levy rates up to the low watermark [on the coast].”

Kemp puts this “nervousness” down to the electoral success of the SNP in two General Elections in 1974, combined with the economic boost that North Sea oil and gas revenues would inevitably give to the independence cause.

“The SNP made big inroads and the most effective device was the big posters all over the place,” Kemp said. "I remember them in Aberdeen but they were everywhere, on the walls of buildings and so on.

“It was the old granny pulling her shawl up around her and she was sitting in front of the fire and the fire was very low, and she was obviously cold. The caption said, ‘And it’s her oil too’. So that had a very, very big effect.

“The SNP won, not as many as they have now, but they won quite a number of seats. The UK Government was extremely nervous about this, and the Scottish Office as well.”

As an official historian, Kemp has read and accessed many years worth of UK Government reports on the North Sea, but said the McCrone Report was distinct from most internal documents.

He explained: “The significant point for me was not actually pointing out that this could transform the public finances of the Scottish economy. There would have been other people in the Treasury who could, if they were asked, say that as well.

“But he [McCrone] was really pointing it out to political masters that there was a big political issue looming for them and that the coming of North Sea oil gave the SNP another weapon and shouldn’t they pay much more attention to all that? It was unusual.”