After a half-century wait, the United Kingdom now has an oil fund. Chancellor John Healey announced the creation of an Energy Wealth Fund at the Jackdaw gas approval announcement on Wednesday, with £2bn of funding diverted from the existing National Wealth Fund. A selection of energy exporting countries, mainly in the Gulf, but also including Norway, over the years have amassed multi-trillion funds using oil and gas revenues to create epic national piggy banks. It has been a long-standing debate in UK economic policy circles.
If neighbouring Norway has amassed a $2.4tn war chest from the same North Sea, where exactly did the UK’s sovereign wealth fund go? It is an apposite question on the week when the national debt also hit £3tn for the first time. “The proceeds of this oil and gas coming ashore now can be invested for the future generations,” the chancellor said. “If we had done this when North Sea oil was first discovered in the 1980s, we’d have a British Sovereign Wealth Fund now that would be worth probably a trillion pounds.” On Wednesday, for the first time, Treasury officials actually calculated how much that missing British fund could have been worth.
The trillion pound number comes from internal Treasury modelling. The assumption was that the UK’s historical North Sea receipts of £200bn had been invested, with no withdrawals and grown at a rate comparable to Norway’s. “Norway demonstrates the power of long-term investment: the government wants to learn from that principle, rather than copy its model wholesale,” one insider told me. It was a “missed opportunity” which “had we systematically invested those receipts, we could have built a huge national asset for future generations”, they said.
Burnham defends Jackdaw decision as Badenoch urges PM to overturn ban on new oil and gas licences It is a giant “What if?” asked often by economists critical of the Margaret Thatcher era. The peak oil revenues were, in their view, frittered away in pre-election tax cuts, which ended up being spent on 1980s garden conservatories. Others might argue that the revenues under subsequent governments were squandered on wasteful government spending. It is worth noting that Norway’s fund only began in earnest in 1996.
The idea of a lost oil fund has also featured in arguments from supporters of Scottish independence, and was suggested by some government advisers in the 1970s. I have met some of the officials running Norway’s fund. They are sometimes lambasted by ordinary Norwegians on the Oslo commuter trains who can all check the live value of the national fund. Three percent of its value is drawn down each year to fund a fifth to a quarter of government budgets.
The nation drew down on the fund during the coronavirus pandemic. It is meant to help fund Norway’s post oil economy and society, as indeed are some of the equivalent funds in the Gulf. It is a gift to the future. While the UK government promises to divert new revenues into its new fund, it will be run rather differently.
Norway’s fund is obliged to invest abroad, and has grown hugely off the back off investments in US big tech. The UK plan is to create a fund that can invest domestically in green energy. It may struggle to match the performance. UK energy tax revenues are also forecast to dwindle as North Sea production slows.
The rate of slowing may now ease, with Jackdaw and extensions to existing fields. Critically Norway’s state still controls its oil companies, also giving a share of their profits. Two billion Norwegian Kroner was exactly the starting investment in Norway’s fund 30 years ago. It is now worth over a thousand times that.
Nobody expects the Energy Wealth Fund’s £2bn to be worth £2tn by 2056. The question is: what might have been, had a similar, far-sighted idea been adopted here in decades past? How much gas could Jackdaw provide? And will it cut your energy bills?
