Office for Budget Responsibility predicts that oil revenues will be £7.5bn lower than first minister's forecast

This article is more than 7 years old

This article is more than 7 years old

Alex Salmond's predictions that Scotland will soon enjoy an oil boom have been rejected after the Office for Budget Responsibility stuck to its downbeat predictions about future oil revenues.

As George Osborne unveiled a £176m increase in spending for Salmond's government in the budget over the next two years, the OBR said that expected oil revenues by 2017-18 would be at least £7.5bn lower than the first minister's predictions last week, at just under £34bn.

Its analysis, published alongside the budget, has reopened a bitter dispute between the UK and Scottish governments over the economic case for independence. Salmond says oil revenues make Scots wealthier per head than people in the rest of the UK.

Last week, the first minister attacked the OBR's assessment last autumn that oil revenues would stagnate for the next five years and then decline.

He insisted that other agencies, including the Organisation for Economic Co-operation and Development and the International Monetary Fund, were predicting much higher oil prices.

A Scottish government paper said it believed oil incomes would range between £41.5bn and £57.1bn by 2017-18, underpinning Salmond's argument that an independent Scotland would be prosperous and self-financing.

Michael Moore, the Scottish secretary, said that in addition to giving a £1bn lower forecast for oil income in its latest figures, the OBR also believed there would be "a significant, long-term decline" in oil revenues in future years.

"There is a gulf between those independent OBR figures and the hugely optimistic numbers published by the Scottish government last week. [This] debate must be based on fact, not wishful thinking," he said.

The chancellor sought to bolster the UK government's role in supporting the oil industry by also unveiling further tax breaks for firms operating in the North Sea with new "decommissioning relief deeds", which will allow energy companies to get tax relief against an expected £35bn bill over coming decades for scrapping old rigs and platforms.

Osborne's spending cuts for many Whitehall departments will also mean a cut in the Scottish government's revenue budget by £103m – a measure which again reduces its day-to-day spending, but by only 0.2%, compared with 1% for most other UK ministries.

But after the chancellor reallocated money for major infrastructure projects, Moore said that cut would be cancelled out by a £279m increase in capital spending, leaving Salmond's government £176m better off overall.

John Swinney, the Scottish finance secretary, refused to comment on the OBR's oil figures but instead attacked the terms of the capital spending increase.

It was partly in loans and equity, and did not compensate for the cut in revenue spending or the billions lost to the Scottish economy from Osborne's welfare spending cuts, Swinney said. Too many stimulus measures were being delayed to future years, he added.

"We have called on the UK government to reverse punitive welfare reforms which will see thousands of Scottish households bearing the cost of the chancellor's economic failure," he said. "While those calls have fallen on deaf ears we will continue to press the case that these reforms are morally and economically unjustifiable."