Treasury Models a £1 Trillion 'Lost' North Sea Fund as UK Launches Its First Energy Wealth Fund

On Wednesday, at the announcement approving the Jackdaw gas field, Chancellor John Healey said the United Kingdom would create an Energy Wealth Fund. It is funded with £2bn taken from the existing National Wealth Fund. After roughly fifty years of debate, Britain has an oil fund of its own, though a small one.

The question hanging over it is an old one in UK economic policy circles. Norway has built a $2.4tn fund from the same North Sea, and several Gulf energy exporters have amassed multi-trillion funds from oil and gas revenues. So where, people have long asked, did Britain's go? The timing sharpens the point: the same week, the national debt reached £3tn for the first time.

Healey argued that the proceeds of oil and gas now coming ashore can be invested for future generations. He added that had this been done when North Sea oil was first discovered, Britain would have a sovereign wealth fund worth probably a trillion pounds.

On Wednesday, Treasury officials calculated for the first time what that missing fund might be worth. The figure comes from internal modelling. It assumes the UK's historical North Sea receipts of £200bn were invested, with no withdrawals, and grew at a rate comparable to Norway's. One insider said Norway shows the power of long-term investment, and that the government wants to learn from the principle rather than copy the model wholesale. The same person called it a missed opportunity, saying that systematic investment of those receipts could have built a huge national asset.

The counterfactual is a familiar one among economists critical of the Thatcher era. In their telling, peak oil revenues were frittered away on pre-election tax cuts, which ended up paying for 1980s garden conservatories. Others argue that later governments squandered the money on wasteful spending. It is also worth noting that Norway's fund only began in earnest in 1996. Supporters of Scottish independence have used the idea of a lost oil fund in their arguments, and some government advisers suggested such a fund in the 1970s.

Norway's fund has become a visible part of national life. The BBC correspondent reporting the story has met some of the officials who run it, and says they are sometimes lambasted by ordinary Norwegians on Oslo commuter trains, since anyone can check the fund's live value. Three percent of its value is drawn down each year, covering a fifth to a quarter of government budgets, and the state drew on it during the coronavirus pandemic. It is meant to help finance a post-oil economy and society, as are some of the Gulf equivalents.

The British version will work differently. Norway's fund must invest abroad and has grown enormously on the back of US big tech holdings. The UK plan is for a fund that can invest domestically in green energy, and the report notes it may struggle to match that performance. Energy tax revenues are also forecast to dwindle as North Sea production slows, although the decline may ease with Jackdaw and extensions to existing fields. And Norway's state still controls its oil companies, which also gives it a share of their profits.

The scale of Norway's growth is stark. Its fund began 30 years ago with an investment of two billion Norwegian kroner, and is now worth over a thousand times that. Nobody expects the £2bn Energy Wealth Fund to become £2tn by 2056. The test ahead is how it performs, and what it shows about what a far-sighted decision decades ago might have produced.