Norway's sovereign oil fund currently stands at around or about £400 billion (around $640 billion); the UK has no sovereign oil fund. The UK, basically, rather than thinking in medium or long terms the UK, basically during the oil boom years, blew the North Sea cash on cutting national borrowing and keeping down taxes. Whatever revenue came in disappeared into the day-to-day budget.
In Norway for the last 16 years Norway, various governments saved the government's petroleum and gas revenue - arising from levies on oil and gas companies which operating in Norway and from its stake in national energy giant Statoil – into its national oil fund. The income from the fund cover 11% of Norway’s national spending. Even more ironically, the UK is buying large quantities of Norwegian gas, adding to Norway’s nest egg, which happens to be one of the biggest sovereign wealth funds in the world.
Norway’s global investment arm of the Government Pension Fund, as the oil fund is formally named, is one of the biggest investors in shares across Europe, even though its share holdings took a hammering during the financial crisis, the fund is now acquiring significant trophy properties across Europe. Some 4% of the fund (around £16 billion pounds) is diverted each year to subsidise Norwegian government spending.
In effect, this keeps Norwegian hospital beds open, helps pay for social benefits and has paid for significant infrastructure projects within Norway and the Faeroes. Norway’s fund continues to grow as levies on oil and gas production and on oil companies bring in around £30 billion annually. As the oil and gas continue to flow and oil and gas prices remain high, then Norway’s fund continues to grow.
The UK, under Labour’s James Callaghan in the mid to late 1970s considered setting up an oil fund, but as economic crisis worsened it simply grabbed the money. In Norway they followed the British, but, wisely had second thoughts after the oil price collapsed in the 1980s. So they decided to consciously bank the benefits from the oil bonanza for future generations of Norwegians.
The Brits chose not too and squandered a fortune on bailing out the economy and subsidised tax cuts. It did not have to be this way – in Shetland, the council set up an oil fund which contains around £185 million today, even after upgrading roads, ferry terminals and local swimming pools. In Scotland, the Scottish Government advocates setting up a special fund supported by North Sea oil revenues.
While the North Sea oil is well past its peak, continued high oil prices and future prospects of West Coast oil fields could deliver for Scotland. The prospect of future energy revenues being banked in Scotland rather than squandered south of the border may concentrate the mind of the Westminster elite.
This may go a long way to explain David Cameron and the Labour Party’s inherent nervousness about the prospects of Scottish independence. What Wales needs is a sovereign energy fund where the tax revenues from energy generation schemes should reside for future generations rather than vanishing into the Crown Estates and the UK Treasury.