EY explained in a recent report on the anticipated implications of Scottish independence for the oil and gas industry that a central theme in the debate has been the proposal from the ‘Yes’ campaign that if Scotland become independent then it should follow the approach of oil-rich countries in setting up a Sovereign Wealth Fund.
The fund would aim to enable the country to spend the wealth generated by oil and gas across the generations so that the beneficial impact is transformational to the economy in many decades time. However, its opponents insist that its creation could require tax increases and/or cuts to public expenditure.
Responses to a survey of 137 senior industry leaders and decision makers indicated that 61% support the creation of a Sovereign Wealth Fund in various forms. 19% are in favour of a post-independence Scottish Sovereign Wealth Fund, another 17% believe that such a fund should be created for Scotland regardless of the referendum outcome.
25% think that a Sovereign Wealth Fund should be created for the UK as a whole, regardless of the referendum. According to EY, this must be on the presumption of a ‘No’ vote as the feasibility or relevance of such a fund for the legacy of the UK is highly questionable.
EY additionally revealed that the biggest companies (turning over more than £ 100 million) are generally less positive about the creation of a Fund post-independence. 45% reject the idea outright, and only 14% say they would like to see an independent Scotland set one up. In contrast, only 27% of businesses turning over less than £ 10 million give an unqualified ‘No’, while 25% would support Fund creation.
…Not if it means raised taxes
The EY report accentuated that the 61% figure in favour of a Sovereign Wealth Fund falls dramatically once the issue of its wider potential fiscal impacts is introduced. Only 27% support the creation of a Fund if it means higher taxes in the oil and gas sector, or reduced public spending in the short term. 35% oppose the idea and the 38% are undecided.
EY holds that the fact that over a quarter of respondents overall still support the creation of a Sovereign Wealth Fund, even if it drives taxes upwards and/or public spending downwards, underlines the strength of support for the concept.
A breakdown of responses by company size demonstrates that of larger companies only 23% say that they would continue to support a Sovereign Wealth Fund if it meant higher taxes on oil and gas companies and reduced public spending. Among companies turning over less than £ 10 million, the level of support in these circumstances is 35%. EY suggested that this disparity may indicate that larger companies believe any resulting rise in the tax burden may fall disproportionately on them.
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