The United Kingdom has established its first oil and gas wealth fund, more than half a century after discovering North Sea reserves. Chancellor John Healey announced the creation of the Energy Wealth Fund on Wednesday, directing £2bn from the existing National Wealth Fund into the new scheme. The decision comes as the national debt has reached £3tn for the first time, prompting fresh questions about what might have been had Britain followed the example of neighbouring oil-producing nations.
Treasury officials have calculated that if the UK had invested its historical North Sea receipts of £200bn since the 1980s without withdrawals, the fund could now be worth approximately £1tn, according to internal modelling. The comparison is stark: Norway, extracting oil from the same waters, has amassed a sovereign wealth fund worth $2.4tn by systematically investing revenues, with its own fund beginning in earnest in 1996. An insider told the publication that it represents a "missed opportunity" which "had we systematically invested those receipts, we could have built a huge national asset for future generations." Healey said of the proceeds from current energy operations: "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 historical debate centres on what happened to North Sea revenues during previous decades. Critics have suggested that peak oil revenues during the Margaret Thatcher era were spent on pre-election tax cuts rather than long-term investment. The idea of a missing oil fund has featured in arguments from supporters of Scottish independence and was suggested by some government advisers in the 1970s.
Norway's approach demonstrates the power of sustained investment discipline. The fund draws down 3% of its value annually to fund between a fifth and a quarter of government budgets, and was tapped during the coronavirus pandemic. Norway's state still controls its oil companies, capturing a share of their profits alongside tax revenues. The fund is also obliged to invest abroad, benefiting significantly from investments in US technology companies.
The UK's new fund will operate differently from Norway's model. It will focus on domestic investment in green energy rather than being obliged to invest internationally, a constraint that may limit its growth potential. UK energy tax revenues are forecast to decline as North Sea production slows, though the Jackdaw gas approval and extensions to existing fields may ease the rate of decline. Starting with £2bn, the fund faces uncertain prospects compared to Norway's initial investment of 2bn Norwegian Kroner, which has grown over 1,000 times its original value in 30 years.
For UK savers, borrowers and businesses, the new Energy Wealth Fund offers a modest future income stream from energy revenues, but the missed opportunity of past decades means substantially less capital available to support public finances or future generations compared to comparable oil-producing nations.