Hopefully, whoever suggested the line about a ‘trillion-pound wealth fund’ to the person in charge of the UK’s public finances will be suitably embarrassed by now. But I suspect not.
One of the Burnham government’s most rational decisions so far has been to green light production from the Jackdaw gas field. The UK will need some natural gas for the foreseeable future, and sourcing more of it closer to home makes compelling economic and environmental sense. It’s just a shame that it has taken so long.
The government has also announced the creation of a new ‘Energy Wealth Fund’ (EWF), with an initial injection of £2 billion and a promise to reinvest an unspecified amount of future oil and gas revenues into the ‘climate transition’. This sleight of hand was clearly designed to make the Jackdaw decision more palatable to those who still oppose any new production of fossil fuels.
But the Chancellor, John Healey, then went further:
“The proceeds of this oil and gas coming ashore now can be invested for the future generations. 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.”
This is just fantasy.
Apparently, Treasury officials arrived at the £1 trillion figure by assuming that around £200 billion of North Sea tax receipts would have been patiently invested in global financial assets and that this would achieved the same returns as Norway’s sovereign wealth fund.
This might be a reasonable counterfactual exercise, but is it realistic to think that any UK government would have resisted the temptation to spend the windfall here instead?
Norway, of course, was in a very different position. Oil and gas revenues are a much larger share of a smaller economy, with fewer domestic opportunities to spend or invest. Indeed, Norway’s population is only about 5.5 million.
As a result, Norway has run large surpluses both on the government budget and on the current account of the country’s balance of payments – the counterpart of the accumulation of a large amount of foreign assets.
Moreover, even if the UK were similar to Norway, is it really the job of the state to run an investment fund on behalf of its citizens?
In this respect at least, it is fortunate that the UK’s new EWF is not remotely comparable to Norway’s scheme, either in terms of its size (the main Norwegian fund is currently worth about £1.7 trillion), or its objectives (the EWF will invest in renewable and low carbon energy infrastructure in the UK, whereas the Norwegian fund aims to generate the highest possible return from a global portfolio of mainly financial assets).
But the political spin here is crassly obvious: Burnham and Healey want to present this “missing” trillion-pound wealth fund as another example of how the UK economy started to go wrong in the 1980s under Mrs Thatcher and the Tories. But Norway’s sovereign wealth fund didn’t really get going until the late 1990s, by when the UK had a Labour government…
Put another way, the clickbait about a £1 trillion “missed opportunity” requires you to believe that, rather than ramp up NHS spending between 1997 and 2010, a Labour government would have said ‘let’s take a punt on some US Treasury bonds and Asian equities’ instead.
Pull the other one.
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