Britain could have built a sovereign wealth fund worth around £1 trillion if North Sea oil and gas revenues had been invested over the past 40 years, rather than absorbed into everyday government spending, Chancellor John Healey has said.
His comments came as the Government approved the Jackdaw oil field and launched a new £2 billion Energy Wealth Fund, which will use future revenues from the North Sea, to invest in renewable and low-carbon energy projects as Britain gradually moves away from fossil fuels.
Healey said: “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.”
The Treasury estimate is based on around £200 billion of historic North Sea receipts being invested and generating returns broadly comparable with those achieved by Norway’s sovereign wealth fund.
Britain took a very different approach. Most North Sea tax revenues went into general government finances, helping fund spending and tax decisions at the time but leaving no significant pool of capital once the money had been used.
Norwegian growth
Norway began moving in the opposite direction in 1990 when it created what became the Government Pension Fund Global, with oil revenues first being paid into it in 1996.
The fund now holds assets worth more than $2 trillion (£1.5 trillion), spread across global shares, bonds, property and renewable infrastructure, allowing the benefits of its oil and gas reserves to extend well beyond the life of the fields themselves.
The new British fund will not work in quite the same way.
Rather than building a huge portfolio of global financial assets, the Government wants to use North Sea revenues to help finance renewable generation, low-carbon infrastructure and the industries which will eventually replace much of the oil and gas economy.
It will begin with a £2 billion injection, with future North Sea revenues flowing into the fund over time, giving the Government a pot of capital it says can attract further private investment, support jobs and strengthen domestic energy security.
Healey said: “I want Britain’s energy wealth to spark a new wave of clean power to work for the British people. Through our new Energy Wealth Fund, we will invest in the clean energy industries of the future, creating jobs, driving growth and strengthening Britain’s energy security.”
There is an obvious limit to how closely Britain can now follow Norway. UK North Sea production is mature and tax receipts are already declining, with Government revenues from oil and gas falling to £4.3 billion in 2025/26 from £9 billion three years earlier.
But the new fund changes what happens to at least some of the wealth still being generated. Instead of all the remaining North Sea revenues disappearing into general spending, a proportion will be recycled into the energy infrastructure intended to replace those fossil fuels.
That could mean revenues from gas fields such as Jackdaw helping finance wind, nuclear and other low-carbon projects long after the gas itself has been burned.
Labour says the new fund shows its now trying to use the remaining years of North Sea production to begin building something that lasts beyond them.
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