It is not entirely clear to me why the Scottish Government should have sought control over a declining revenue stream such as that in the form of taxation from oil located in 'Scottish waters', however the latter might be defined. On the (questionable but logical) assumption that oil revenues directed towards Scotland would replace part of the block grant from the UK Government, then it would appear that the Scottish Government would face a progressively tighter financial settlement as oil revenues inevitably declined. Of course, it would be possible to build in to any new arrangements for the block grant to be increased again as oil income declined, but that kind of defeats the point - if the motor for the new arrangements is to give greater financial responsibility to the Scottish Government, then the latter can hardly expect to be bailed out when income falls to less than anticipated. Would it not have been more sensible to ask for a share of a more stable income stream, such as VAT or whisky duties?
It is equally unclear why the UK Government should have dismissed the Scottish Government's request in such a peremptory fashion. Here was an opportunity to make a substantial cut in the UK Government's subsidy commitment to Scotland, even if in the short-term it would be balanced at UK level by the loss of oil revenues. It could also have been presented as an attempt to make the Scottish Government face up to its financial responsibilities. If I were Gordon Brown, I might have been tempted to play this one long - there would obviously have needed to be extensive studies, consultations and discussions before any final decisions were taken. Besides, it might - just - have been possible to thrash out a deal where both honour and financial expectations were satisfied on both sides.
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