Given the resource wealth that has flowed into the United Kingdom from North Sea oil over the past few decades, many (many) people have asked us why the UK never got around to setting up a commodity fund. It’s a good question. And it’s one that Peter Wilby of the New Statesman addresses today:
“Reports that the China Investment Corporation, owned by the Chinese government, may take a stake in Liverpool FC raise the question: why don’t we have something similar? Sovereign wealth funds now own an estimated £2trn of the world’s assets. China’s two major funds have stakes in Citigroup, Barclays, Visa, Apple and Coca-Cola; Singapore’s in the Swiss bank UBS; Dubai’s in Sony; Qatar’s in Sainsbury’s. Lots of countries, particularly oil-rich ones, have such funds, including Brazil, France, Ireland, New Zealand, Nigeria, Norway and Russia. Even US states, such as Alaska, New Mexico and Wyoming, have them. So why not us?
The obvious opportunity came in the 1980s when North Sea oil was flowing, but at the time the only significant supporter of the idea was Tony Benn – who, as energy minister in 1975, had set up the British National Oil Corporation partly to ring-fence prospective oil revenues for investment – and he was regarded as a madman. Tory governments preferred to use the money for tax cuts and welfare payments during a deliberately engineered recession. Besides, if a fund was set up, the Scots might declare themselves independent and snaffle it. Under the Tories, North Sea oil and gas produced £35m every single day for 17 years. The Norwegians, also North Sea beneficiaries, set up their fund in 1990; today it is one of the world’s top three sovereign funds and pays the pensions of the country’s citizens. A couple of years ago, PricewaterhouseCoopers estimated that, if the tax revenues had been invested, Britain would have a pot of some £450bn. Add Tory privatisation proceeds, and it would be the world’s biggest sovereign fund, banishing any doubts about our creditworthiness. Next time you hear the Tories witter on about how Labour didn’t put money aside for a rainy day, remember that.”
Interestingly, the bit in there about the Scots has actually proven to be pretty close to the mark. Anyway, while Wilby’s interpretation of events ignores some significant differences between the Norwegian and British economies over the past few decades, he does have an interesting take. And, I have to admit, a £450bn UK SWF sounds pretty good about now.
The answer to the title should be : silly. That is if one looks at the UK’s current condition. In hindsight, Tony Benn’s reputation at the time was indeed far from impressive. In hindsight, his main mistake was to be politician in the UK. Interesting though. I guess a few years of Thatcherite social vandalism instead of a SWF was also more in line with UK popular preferences, probably. Left or right, the result would still have been the same old UK.Poverty today, riches tomorrow, and vice versa..
The U.K. Government has a poor track record of investing its windfalls for long-term gain, rather than short-term political benefits. Think not only of North Sea oil, but also the privatisations of our nationalised industries under Thatcher, let alone the £22.5 billion raised by the 3G auction in 2000.
Even if only fractions of those revenues had been invested then we’d be in a much stronger position viz national debt.
I was toying with the idea of the bank tax as an investment fund, but they aren’t now raising enough to warrant it…
Hey, whatever happened to the ‘strategic investment fund’ idea in the UK? If you recall, this was supposed to be a fund worth a billion or so pounds that would invest in domestic technology firms; the rationale being that the country needed to protect the UK’s tech industry during the financial crisis. In that sense, it was meant to be a sort of copy of France’s FSI…
You set me a challenge!
According to BIS, the “Strategic Investment Fund” is worth only £30.4 million (although it was announced at £395 million) (p.188 and 43 of the below document)
Coupled with the fact that there are “underspends” on the fund (p.44) I don’t think its having very much of an impact… my point still stands…
http://www.bis.gov.uk/assets/biscore/corporate/docs/b/10-p102-bis-resource-accounts-2009-10
Well done! And, agree to agree: UK definitely has a poor track record on this. Have a nice weekend!