Keir Starmer will take a wrecking ball to Scotland's economy

Our new First Minister has promised to refocus his government on bread-and-butter issues, particularly the economy. That’s a welcome development after growth sank to a meagre 0.2% under Humza Yousaf.

Scottish unemployment rose to 4% in the year to February, while the activity rate – the proportion of the available workforce in a job or looking for one – dropped to 74.2%, which is worse than the UK average. Much of this fall in activity is due to long-term sickness.

For the record, Scottish economic growth in the year before the 2014 indy referendum was a comfortable 3.1% – or more than 15 times as much as in 2023. Certainly, there are international and UK factors that influence the Scottish performance, but we can’t blame everything on the rest of the world.

Frankly, the Scottish Government took its eyes off the economic ball. Hopefully that’s about to change. Unfortunately, Sir Keir Starmer is about to make Scotland’s economy a lot worse, a lot faster. Last week he popped up in darkest Essex (Labour’s real pre-occupation) to announce the latest version of his “five pledges” for government.

Top of the list was “economic stability”. Note that very carefully: the promise is not economic growth but a focus on not rocking any economic boats. That means “getting a grip of the public finances”, to quote shadow chancellor Rachel Reeves. Or in plain language, Labour’s version of austerity.

Starmer and Reeves are making a priority of putting their hands down the back of the national sofa in search of any spare change. That includes extending the Tory windfall tax on North Sea oil and gas firms by an extra year until at least 2029, and increasing it from 75% to 78%.

As a rule, most of us won’t cry over squeezing the energy companies (or the banks). But there’s a wee problem if you squeeze too much, too quickly. North Sea oil and gas fields are marginal suppliers because they cost a lot to develop and operate. Their economics have become a little easier recently as global energy prices have risen in the wake of the Russia-Ukraine war, but it’s a balance.

Labour’s plans to raise extra cash from the North Sea sector have nothing to do with increasing its efficiency and everything to do with funding Labour in office. In other words, Scotland is yet again Labour’s piggy bank.

However, this is going to result in anything but economic stability. A report last week from analysts at the Stifel investment bank forecast that Labour’s planned increase to the windfall tax and proposed removal of incentive allowances will mean that job numbers in the North Sea could fall from 200,000 to 100,000 – as quickly as by the next General Election in 2029. Stifel bases this calculation on a likely fall in North Sea investment as extra tax goes into the Treasury’s coffers.

A CULL of one in every two North Sea jobs would be disastrous. I dare say that many of these workers would find employment abroad, though at cost to themselves and their families.

I also give you that 100,000 job losses may be at the extreme end of the projections. But if you realise that current unemployment in Scotland runs to 120,000 in total, even half the Stifel forecast would raise the Scottish jobless total by 40%. I don’t call that maintaining economic stability.

But here’s the killer – a point in the Stifel analysis that was under-reported in the UK media. Labour think their higher tax rate would generate circa £6.5 billion in Treasury revenue up to 2029, to be used to create a new state energy company (of which more anon).

But these numbers are bonkers. If raising the windfall tax leads to a fall in investment, output will actually start dropping – and tax revenues with it. Stifel calculates the UK will lose around £20bn in taxes as a result. Labour’s tax numbers are nonsense. Which will mean even more austerity.

But won’t we get a spanking new Great British Energy (GBE) corporation in return, dedicated to creating a public stake in (particularly) offshore renewables? This is Labour’s big idea. However, the exact details remain obscure. GBE won’t take a share of existing generation companies but be a new competitor. That will take time and a lot of cash.

Currently, under an existing government-industry agreement, the UK aims to raise installed offshore capacity from 8GW to 30GW in 2030 – a programme officially termed as “ambitious”. It will require £48bn in investment. But Ed Miliband, Starmer’s energy cheerleader, is promising to raise output to 35GW using the new state energy company.

However, if you understand that GBE will have to borrow much of its capital in competition with the private sector, and poach skilled workers from other companies, Miliband’s plan looks distinctly pie in the sky, even if the headquarters of GBE are to be located in Aberdeen.

We’ve been here before, of course. In 1975, we had the British National Oil Corporation, which aimed to develop (and own) much of Britain’s North Sea oil industry for the public good. It was flogged off to BP in 1988.

THEN there was the famous Green Investment Bank, launched in 2012 but then privatised in 2017. Lesson: only an independent Scotland will be free enough to own and control its own energy resources.

Meanwhile, hidden in the small print of Labour’s energy plans, is a commitment to more nuclear power. Labour promises to “get new nuclear projects at Hinkley and Sizewell over the line, extend the lifetime of existing plants, and back new nuclear including Small Modular Reactors”.

For the record, the latest cost estimate for the Hinkley Point C nuclear power station is £46bn – equivalent to almost the entire cost of the North Sea offshore generation industry. Add in the rest of Labour’s nuclear ambitions and we’re headed towards £100bn. When Labour’s energy plans eventually explode – as they will – only the nuclear power industry will benefit.

The irony in all this is that nearly half of the UK and Scotland’s offshore wind generating capacity is state-owned. Alas, the states involved are Denmark, France, Sweden and China.

Not only have our offshore turbines and generators been built abroad but the income they generate flows abroad too. Scotland has been reduced to an energy colony.

On top of that, Labour energy plans will destroy what remains of our oil and gas industry. And, criminally, our petrochemical facilities at Grangemouth are being closed. Paradoxically, this will increase local carbon emissions by necessitating vast new ship movements bringing imported refined products.

John Swinney has only a few years to change direction. The future of the Scottish economy and the constitutional question are now even more entwined than ever before.

Without independence Scotland’s renewables sector will become a foreign enclave while our oil and gas industry will disappear entirely. This is the antithesis of a “just transition”. Rather, it is second de-industrialisation of the Scottish economy.