Ministers from both governments are vying to boast of the immense wealth and business opportunities offered by North Sea oil and gas.
Alex Salmond again insisted this week that untapped reserves are worth around £ 1.5bn, while UK ministers are in Aberdeen for three days to tout UK oil expertise to a Mozambican delegation led by President Armando Guebuza.
But in Shetlands, where the UK’s oil industry first took hold and flourished, a rebellion is brewing over unpaid debt that is 40 years old and worth around 40 million. of pounds sterling.
And if that bill is not paid, council executives warn, they will be forced to raise rents for more than 1,800 council tenants by 12% or more in April.
Between 1971 and 1981, as the islands saw their population increase by 37% with the oil rush, the Shetlands built 1,000 new homes primarily to house the first generation of oil workers, many of whom were recruited to build and equip the vast Sullom Voe oil terminal, borrowing £ 50m to do so.
Some 200 houses were built between 1976 and 1980 in the north of the continent specifically for Sullom Voe and the UK, and then Scottish ministers promised – the Shetlanders repeatedly repeat – that they would be reimbursed.
That debt now stands at £ 40m, a tiny fraction of the £ 300bn (in today’s currency) generated for the Treasury from North Sea oil and gas taxes since that oil came ashore for the first time. And campaigners say that debt is only 0.007% of the £ 57 billion in tax revenue that Salmond’s government says could come from future untapped oil and gas reserves.
In an article for the Shetland Times, Malcolm Bell, the chairman of the Council of the Shetland Islands, described the background:
In the 1970s, when oil was discovered around the Shetlands, a nationwide campaign began to ensure the infrastructure was in place to harness potential oil revenues as quickly as possible.
These were indeed very dark days: the three-day week; oil crises; power cuts and so on. The government saw North Sea oil as a solution. The Shetlands, strategically positioned to help, were courted by government ministers. We have responded to this call, we have done everything possible; our islands have been forever transformed.
Our predecessor advisers felt able to make this unprecedented investment because they had been promised (after all by the government) that the debt would be settled. Reports at the time confirm that these decisions were made safely, knowing that the government “would see us well”; provided that we do our part in the national interest and build the new homes quickly.
As the Prime Minister brags that oil reserves equate to £ 300,000 per capita for every Scotsman, and British ministers vie with Salmond over the wealth about to come from a second Atlantic oil boom North, the Shetlanders are now pushing both governments for action.
Scheduled to coincide with the Scottish Government’s summer cabinet in Lerwick on Thursday, the Shetland Times newspaper – which runs the Drop Shetland’s Debt campaign – handed over a petition with some 2,260 signatures (around 10% of the population) to the government Scottish local. Minister Derek Mackay Urges Action.
Bell is also pushing for a meeting on this issue with Salmond in person; last year the Scottish government abolished a housing assistance subsidy meant to alleviate the costs of that debt and Salmond apparently thought a deal had been made to settle the score.
(During his visit to Lerwick, Salmond acted deftly to help neutralize another rebellion in the Islands: he set up a ministerial group to deal with demands related to the debate on the independence referendum of the Shetlands, Orkney and of the Western Isles for greater powers and autonomy. He nicknamed it “the Lerwick Declaration”].
Faced with an immediate and serious deficit in their housing budget, the Shetlanders now want the British and Scottish governments to compromise by reaching a deal to divide the debt in three ways, but both governments are placing the blame and responsibility on the other.
Mackay said the Scottish government was ‘open-minded’ about such a deal and accused the UK government of deliberate inertia, effectively leaving Westminster responsible for taking the lead:
Westminster absolutely needs to be called to account for the commitments they made in meetings the council attended – and much longer.
We would be very receptive to [a] tripartite meeting. Indeed, I will be writing to the UK government to encourage their participation in this – in particular recognizing that the debt was a historic issue. Most of the debt was created and accumulated even before the Scottish Parliament was established, and I think the UK government needs to recognize that.
But it looks like the UK Treasury will refuse to do so, and officials insist the Scottish government knows it and why.
Even though British ministers would have pledged the money 40 years ago, the Treasury (probably unwilling to set a precedent on this type of issue) insists that since then the Scottish government and Holyrood have had financial responsibility and direct constitutional law for housing and local government since devolution in 1999.
Maybe, but the politics of it gets even more intriguing due to the role of Danny Alexander, Chief Secretary to the Treasury.
As a Highlands Lib Dem MP, Alexander will be very sensitive to the politics of this. His party has long-standing political allegiances with the Shetlands (which send the Lib Dems back to Holyrood and Westminster) and – when in opposition Alexander campaigned for the Highland Council’s real estate debt to be wiped out. (Oddly enough, when he became UK government minister in 2010, Alexander changed his mind.)
In December, Bell led a delegation of advisers and officials to meet with Danny Alexander, the chief secretary of the Treasury. Bell reports:
He is committed to doing everything possible to help us find a solution with the Scottish government.
They are not passing the buck, say Treasury officials, simply setting out the legal facts: housing and local government are part of their £ 30bn a year Westminster settlement.
Alexander apparently made this clear in correspondence with John Swinney, the Scottish financial secretary. So Alexander’s engagement seems to focus on putting pressure on Edinburgh.
And, although no one seems to be saying it out loud, the Shetlands are still relatively wealthy thanks to a particularly astute oil deal that has worked in their favor.
For 30 years, Shetland received a bounty for every barrel of oil landed at Sullom Voe, pouring that money into an oil fund. The Shetland Charitable Trust now has some £ 200million in its account. On this point, the British ministers have allowed the islands to directly share the oil wealth that passes through them.
This may all be true, but the Shetland Times petition, which has garnered 1,782 signatures online and hundreds more through coupons in the newspaper, suggests the UK government has another reason for being held responsible.
He maintains that:
[Shetlands] the colossal debt burden escalated after Margaret Thatcher introduced the “right to buy” for tenants of council houses. This meant that SIC sold over 1,500 of its homes at discount prices. This has caused her rental income to plummet by around £ 5million a year, leaving her housing income account in the throes of huge debt.
Shetland Times reporter Neil Riddell puts it this way:
The debt resulted from the council building houses to help the British state run oil from the North Sea.
Ministers on both sides of the border have since recognized the state’s moral obligation to pay. Unfortunately, no government has ever handed over a check.
Tenants of social housing already face some of the highest rents in the country. If no action is taken, these tenants – who did nothing to cause this situation – will be hit even harder, and we don’t think that’s fair.
