Did Margaret Thatcher blow the UK’s oil dividend?

Like many Brits, I suspect, I was reminded by Margaret Thatcher’s death of how ambivalent I felt about her legacy. It would be churlish not to recognise the change in entrepreneurial culture that happened in the 1980s. From where I stand it would be doctrinaire not to see the spread of home ownership as a positive, and the dimishing of the power of the unions as necessary. At the same time, the Falklands still seem like an abomination and all the old footage from the miner’s strike, the IRA hunger strikes and the inner city riots have brought back just how divisive a period that was. Not all bad, I guess. At least people cared about politics then and there was a clear choice.

But with all the talk of conflict both Margaret Thatcher’s supporters and her detractors more or less agreed about what Thatcherism was: she had taken the Sick Man of Europe from the 1970s and transformed it into a paragon of freedom and free markets by the early 1990s. Triumphantly, said her supporters. In a way that irreparably damaged Britain’s social fabric, said her opponents, and we are still paying for it today. Thatcher herself constantly reinforced in interviews the idea of cruel to be kind, herself as Housewife in Chief, making the hard choices to keep the family going in hard times.

But two things are clear about the North Sea oil dividend: the first is that Thatcherism would not have been possible without it; and the second is that the way it was managed is about as far away from fiscal prudence as could be imagined.

Britain earned about 100 billion pounds in taxes from the North Sea in the 1980s as production surged up from its start in 1975 and fields like Brent, Piper and Cormorant become household names. In today’s terms that would be maybe double that, 200 billion pounds, more than a tidy chunk of change. More importantly, it accounted for about ten percent of the government budget during that time. Welfare benefits totalled about 23 billion pounds when the Conservatives came to power in 1979. Unemployment was about a million and a quarter then but had risen to three million people by 1984 – when welfare benefits had risen to 37 billion pounds. The increase of 13 billion pounds matches almost exactly the average annual revenues the UK government was receiving at the time.

Famously, Britain didn’t save any of the 200 billion pounds it has earned in total from the North Sea, in stark contrast to the Norwegians who now have 100,000 euros for every man, woman and child in the country in a Future Generations Fund. Norway of course has far fewer people, only the same as, for example, Scotland, so the money goes a lot further. In her resignation speech to the House of Commons in 1990, Margaret Thatcher responded to the Scottish Nationalist MP Jim SIllars by saying lots of overseas investments had been made which the British people would see the benefit of. It’s hard to know what, in fact.

What else could you have done with that much money? At this remove it’s hard to know. Maybe the revenues should be linked to another element of British oil policy in the 1980s – a totally laissez faire attitude to management and state interests in the industry. Again in contrast to Norway, who in 1971 took the decision to create Statoil, their state oil company. Tony Benn had founded the British National Oil Corporation in 1975, based in Glasgow, but it was sold in the 1980s to BP. Successive ministers of finance, the economy and oil took pride in the fact that the UK Continental Shelf was ‘investor friendly’. The government employed a royalty and tax scheme where blocks went to the highest bidder and the state did nothing more than collect the taxes which were calculated simply from production and normal company profits.

But this is also a misleading simplification. First, we must presume that Norway, with its centre-left thinking and dominant state-owned oil company, was and is investor-friendly: as of last year 70 oil companies held blocks in the Norwegian sector including the canon of Big Oil: ExxonMobil, Shell, BP, Chevron, ConocoPhillips, Anadarko, Eni, Total and so on. Secondly, the British state might not have intervened to run the oil industry but it constantly intervened under Margaret Thatcher to capture ‘superprofits’ – changing the rate of taxation or imposing windfall taxes whenever the Treasury saw the chance, a habit it continues to this day. As the chairman of the Tullow board said in a speech last year, Tullow had been subject to more improvised tax changes in the UK North Sea in the previous decade than it had been in the 16 African countries it now operates in. Norway has done far less of this: on the other hand its need is not nearly so pressing since between Statoil’s operating stakes and its own standing rates of taxation it was far better placed to capture windfall profits as they occurred through existing arrangements, without a need to improvise windfall taxes whenevr Brent sustained a new price floor.

If one is not blinded by ideological blinkers, another interpretation is possible. Norway’s economic nationalism and state-owned company has been socialistic – and also market-aware, prudent, and competent. Britain’s fanfared laissez-faire approach in the North Sea has been, in fact, spendthrift, trustafarian and inept.

So back to that dividend – what could it have achieved in different hands? One thing is striking that North Sea production scaled up just as Clydeside’s heavy industries declined and died. A more interentionist state policy might have subsidised the refitting of the shipbuilding and other engineering activities to serve the massive new market in the UK’s own waters. Could Scottish shipyards have become rigging outfitters competitive with those of the South Korean chaibol over time? Could the undoubted enterprise culture which sprang up in Aberdeen at the small and medium company level, geologist shops and logistics, for example, have been augmented by state-sponsored champions that eventually became industry leaders – in the same way that Statoil is now a global leader in deep sea technologies?

Or maybe, outside the oil sector, the dividend might have been invested in an industrial policy that revolved around more than privatisation, enabling infrastructure, training and so on – Barack Obama’s ‘you didn’t build that’. We have to be careful not to overconclude: Norway didn’t have a debilitating class conflict or an entrenched labor aristocracy to contend with. Once it pursued the national ownership route it took the best part of twenty years for Statoil to emerge as a dominant force, because the Norwegians gave the international companies generous terms at first and gradually tightened as they went up their own carefully planned learning curve. It wasn’t Chavez, in other words. Would a policy run by Tony Benn, Michael Foot or Neil Kinnock have been so disciplined? We’ll never know.

In fact, one might suggest it was the Thatcherite style of management of the industry that was closer to Chavismo – both leaders’ core ideological achievements were built off lottery wins, meaning that the cost-benefit analysis is seriously skewed.

They might have broadly achieved what they claimed but for a very simple reason that has been overlooked – they were far luckier than anyone imagined, including, of course, themselves.

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