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An Oil Fund for Scotland: Taking forward our National Conversation

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6 Conclusions

6.1. This report has examined the oil and gas industry in the UK and Scotland and surveyed oil funds internationally to identify issues relevant to the operation of a similar fund for Scotland. This chapter outlines the main preliminary conclusions.

Preliminary conclusions

6.2. Significant revenues have been extracted by the UK Exchequer from Scotland's North Sea oil and gas reserves. Unlike many countries with substantial reserves of finite natural resources, the UK Government has yet to establish a fund where a proportion of this income is invested over the long-term. While reserves of oil and gas in the North Sea are in decline, it is estimated that there remain significant assets which have yet to be fully developed. This offers the potential for significant revenue and income generation from the North Sea in the years ahead.

6.3. Economic theory suggests that there are a number of advantages arising from the establishment of an oil fund. These include the opportunity to create sustainable wealth, facilitate economic development over the long-term, enhance economic stability and ensure that the benefits of a country's natural resources are shared between current and future generations. However, the establishment of an oil fund necessarily implies a commitment to limit current consumption in favour of investment over the longer term. This can be challenging, particular in periods where the public finances are subject to other pressures.

6.4. Under the current constitutional settlement, key elements of fiscal, economic and monetary policy, including oil and gas taxation, are reserved to Westminster. However, the experience of Alberta and Alaska suggests that there are precedents of devolved governments having the autonomy to establish such funds.

6.5. The potential value of an oil fund for Scotland could be substantial. The actual value of such a fund would depend upon a number of factors, including the level of initial investment, the number of years of investment, the returns received on the fund's investments, and the extent of any withdrawals from the fund. The operation of oil funds in other countries offers a number of important insights for the possible establishment of a similar fund for Scotland. International evidence shows that most funds attempt to preserve the real value of the principal by imposing guidelines on how much can be withdrawn from the fund. More widely, key options include whether to set-up the fund independently or as part of the government of the day and how transfers both in and out of the fund should be arranged.

6.6. The scope to invest a proportion of oil and gas revenues into an oil fund for Scotland is a point of debate. However, the experience of other countries and their ability to create and maintain a successfully operated fund is perhaps the greatest lesson and motivation for Scotland.

How to participate in the National Conversation

6.7. We welcome ongoing discussions regarding establishing a Scottish Oil Fund as part of our National Conversation. Comments on this paper and the policy choices set out in Chapter five can be made through the National Conversation website at www.anationalconversation.com or e-mail joinin@anationalconversation.com.

6.8. Responses can also be sent by post to:

The National Conversation
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Edinburgh
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