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North Sea Oil: A Tale Of Two Approaches

May 12, 2017

 

A slump in oil prices over the last couple of years has meant that for the first time in a long time North Sea oil and gas was actually a net loss to the exchequer, rather than a gain. It cost taxpayers nearly £400m in 2016, compared with a similar amount the previous year going into government coffers. Does this signal the end of the money flow from the North Sea? 


There's more. The cost of decommissioning the oil and gas infrastructure in the North Sea between now and 2050 will cost us around £50bn, although the GMB union put the figure at least £75bn. Either way, once again we get shafted. (And other countries will be paid by us to do the decommissioning, such as Turkey, for example.)  Then there's government subsidies to pay for the clean-up.  The top five recipients of taxpayer money in this field (BP, Shell, ExxonMobil, Talisman Sinopec and Hess), were paid a net total of more than £1.1bn across 2014 and 2015, according to Carbon Brief.


So what of all that oil? Since the oil was discovered up there in the 1960s, estimates put the net worth to the government piggy bank at £190bn (not adjusted for inflation). A lot of money indeed. So what has it been spent on? Where did it all go? 


The basic answer seems to be it was used to keep taxes low. Yep, no rainy day investment fund, no long-term thinking, no investment of any kind in the future; after all, investing in things is a bit, well, 70s, isn't it? Or Scandinavian. Or socialist. It's much easier, if you're a free marketeer, to give things away, especially to rich City mates in the form of lower taxes. And if you're giving things away it makes saving rather difficult. But another country, Norway, that discovered North Sea oil around the same time we did, have done exactly that. And now they have the world's biggest sovereign wealth fund. It's so big it'll be worth a trillion dollars by 2020. That's a fair bit of money, is that. 


Yet Thatcher's government, from 1980 to 1990, received £165bn from oil (when adjusted for inflation). But whereas other countries saw the worth in saving for a rainy day, Thatcher decided to appeal to middle England and buy their votes with tax cuts. And all those millions of unemployed must have cost a pretty penny in benefits. And how we needed that money. The oil crises at either end of the 70s (caused by the Arab/Israeli war, and upheaval in Iran), caused the price of oil to shoot up to what would now work out at around $100 per barrel. (It's now less than half that.)


Currently worth $903bn, and based on revenue since 1971 (almost exactly the same time as the UK started to benefit from North Sea oil) the sovereign wealth fund attracts a lot of debate in Norway. Should the fund keep on piling up for the future? Should part of it be used for infrastructure now? Is such a fund ethical? It's nice that the Norwegians can have such a debate, because thanks to the fund we can see what can be achieved by long-term thinking. It certainly puts the shocking lack of investment in the UK from the oil spoils into perspective. But studies carried out over the years have shown that if only Thatcher had decided to invest a fraction of her billions into a fund. One study showed that if a mere 10% of the 80s oil wealth had been set aside (and adjusted for inflation), for a nominal return of 3% it would have been worth £25bn a year. 

 

 

It has been argued that the UK is not Norway, that our population is much bigger and therefore the infrastructure is completely different, and also its tax system is not the same as ours. But with taxes as a percentage of GDP being the highest they've been since 1987 (more stealth taxes, and increases in VAT and NI), the tax argument is demolished. And of course Norway has a far higher standard of living than we enjoy, and again, all funded through taxation and reinvested. This is what happens when you're able to take a pragmatic approach, as opposed to flogging off the family silver to any old fool. And as for infrastructure, it has been argued that Scotland, with a similar population as Norway (and in whose back yard the oil was found), the squandering of billions in oil money has meant nothing like the wealth Norway has invested in. Instead Scotland has suffered from the oil that bankrolled Thatcherism and financed Scotland's joblessness. 


Gavin McCrone's 1974 report into the wealth that could be enjoyed by Scotland as an independent nation thanks to North Sea oil was stamped 'secret' by successive governments, lest they encourage Scottish nationalism. In contrast we now see that poverty blights large parts of Scotland, and mortality rates are staggering. This is the direct result of the devastating failure that was Thatcherism. If only Norway had a series of conservative governments. They too could have pissed the money up the wall, sowed the seeds of systematic financial stupidity, and witnessed social deprivation on a staggering scale as the standard of living plummeted. How jealous they must be of Britain and her shabby failure to prepare even minimally for a rainy day.


And now I read that it was recently announced that Norway is changing the way it invests in its wealth fund, and that it's now diversifying into other areas, including the running of privatised services in the UK. This essentially means making a profit from the UK taxpayer via government subsidies. You really couldn't make it up. And here we are, as our country lurches from crisis to crises, wondering what might have been. Truly it is an indictment of the staggering failure that was Thatcherism in particular and Conservatism in general.
 

 

 

 

 

 

Max Webster is the editor for Political Provocateur

 

 

 

 

 

 

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