Thatcher and North Sea oil – a failure to invest in Britain’s future

Had Thatcher been a truly visionary politician, she would have established a wealth fund for the oil windfall, not squandered it on tax cuts and current spending.

Margaret Thatcher was undoubtedly a transformative prime minister. The only peacetime premiers who might be said to have had a similar lasting impact on British politics are the Victorian titans Gladstone and Disraeli, and Attlee, who led the great post-war Labour government

But whatever else might be said of Thatcher’s record one thing seems undeniable. She was not an investment prime minister. She may be credited by David Cameron for having made Britain great again following the malaise of the 1970s but she failed – and spectacularly so – to invest in Britain’s post-Thatcherite future. As capital spending plummeted, our national infrastructure was left to rot. Public services in particular were starved of resources. Most seriously her governments did little to help find future employment for those industries deemed beyond the pale of the Thatcher revolution. 

But nothing better illustrates her failure to invest in Britain’s long term future than her mishandling of the giant windfall she was gifted on entering Number 10 from booming North Sea oil revenues.

There is no doub that oil played a big part in bankrolling Thatcher’s agenda and in allowing Britain to address a chronic balance of payments problem that had besieged post-war government (Tony Blair said in 1987 that North Sea oil was "utterly essential to Mrs Thatcher’s electoral success"). But history should also record that Thatcher missed a trick in not diverting some of the proceeds of oil revenue into an oil fund, like Norway and others did. Instead she used the lot to support current spending, including covering the costs of large-scale industrial restructuring and funding expensive tax cuts to woo middle England.

And what a lot it was. The table below shows government tax receipts from the UK Continental Shelf since 1980 where the numbers have been rebased to show receipts in real terms, expressed in 2011 pounds. In the years between 1980-81 and 1989-90, the Thatcher governments received a staggering windfall of £166bn. 

Total North Sea Revenue: UK 1980-81 to 2010-11 in real terms (£2011)


Source: Scotland's Choices McLean, Gallagher and Lodge 2013

Oil revenues were significant in the 1980s for two reasons. One was that the price of oil was at a real-terms historic high, after two political shocks in 1973-4 (caused by the Arab-Israeli war) and 1978-9 (caused by the Iranian revolution). In 1979 the marker oil price reached a peak of US $93 per barrel at today’s prices. This price has only been exceeded twice in history: once at the dawn of extraction in the 1860s, and once in 2007. The other was that North Sea production came on stream rapidly, with the easiest fields, of course, being exploited first.

Now, no one is suggesting that all oil revenue should have been put away for a rainy day just that some of it should have. To think through what might have been, the Scottish government published a report in 2009 which considered "how much a hypothetical UK Oil Fund would have been worth had the UK Government invested a proportion of oil tax revenue over the past three decades". The answers, on three different assumptions about the annual investment, and three different assumptions about the nominal rate of return, are shown below:

Value of a hypothetical Oil Fund for UK (2008-09), on assumption that given percentages of North Sea revenues had been allocated to it since 1980.

Building up an endowment is something politicians would often agree is a good idea. But they almost never do it (we don’t for instance have a real National Insurance fund but rather a pay-as-you-go system). The reason is very simple. A politician in a democracy must be re-elected in, at latest, five years’ time. An endowment must be built up, unspent, for much longer than that if it is to yield anything worth having.

Undoubtedly there would have been fiscal consequences had Thatcher opted for an oil fund: after all, you can’t spend and save at the same time. Nevertheless, as these figures show, if just 10 per cent of UK tax receipts from the North Sea had been put into an oil fund starting in 1980 and continuing until 2008, and if the nominal return had been 3 per cent, the value of the fund would be £24bn per annum. Twenty per cent of oil revenues on a return of 5 per cent would have created a pot of £66bn per annum. The failure to create such a fund is brought home when you consider what it could have been spent on. To give one example, hundreds of thousands of new houses could be built to replace the housing stock Thatcher ran down through her iconic policy of selling council houses. We might not face the housing shortage crisis we do today.

The decision to treat tax receipts as a windfall to set against current expenditure was a major policy mistake. Oil and gas in the North Sea are part of the nation’s capital stock. To tax this stock and spend the money in a flow of current expenditure is to deplete the stock. The lesson from history is that tax proceeds on capital receipts should be reserved in some form for major investment projects, something that might be borne in mind should shale gas generate significant revenues.

Had Thatcher been a truly visionary politician, she would have done more to use the the riches from North Sea oil to not only rescue Britain from her troubled past, but also help her be great in the future too. 

Guy Lodge is associate director at IPPR. He is co-author with Iain McLean and Jim Gallagher of Scotland's Choices: the referendum and what happens afterwards published on April 18th by Edinburgh University Press.


A picture taken on 11 June 1984 shows a tanker taking on oil from a loading bay at the Statfjord A-platform in the North Sea. Photograph: Getty Images.

Guy Lodge is associate director at IPPR. He is co-author with Iain McLean and Jim Gallagher of Scotland’s Choices: the referendum and what happens afterwards and with Anthony Seldon of Brown at Ten.

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Calais Jungle: What will happen to child refugees when they leave?

Hundreds of unaccompanied child asylum seekers are being taken to Britain where they face an uncertain future.

Hundreds of unaccompanied child asylum seekers are being taken to Britain, moved from a camp in Calais, northern France, as its closure begins. There were 387 unaccompanied minors in the French refugee camp known as “the Jungle” with links to the UK and they are arriving in England in groups of 70.

Upon arrival, the children are taken to a secure unit for 72 hours, before being reunited with families already living in the UK. They are from a group of more than 1,000 children who have been living in the camp in recent weeks. And now, some of those without links to Britain, but who are regarded as particularly vulnerable, are now also being taken across the English Channel.

The youngsters were granted asylum under the Dublin Regulation. The children’s move to Britain has stalled twice already, over delays in accommodation and establishing proof of age. Migrant children have been subjected to intense media scrutiny upon arrival in recent weeks. Calls for dental checks to verify the true ages of youngsters who looked older were called for, but the UK government branded such a practice as “unethical”.

For a long time, the minors living in the camp faced an uncertain future, but the move to take some children to the UK signals a change of tack by the British and French governments. Britain has been criticised for its lack of humanity, but it now seems that the pleas of these children at least have been heard.

Impact of war

While the youngsters may have escaped serious physical injury, the conflicts in the Middle East will have taken a psychological toll on them. Living in the midst of war, many have witnessed unspeakable horror, losing family members in brutal circumstances. Consequently these youngsters are now incredibly vulnerable to mental illness, with research indicating that more than 80 per cent are likely to develop issues such as post-traumatic stress disorder (PTSD).

It is important to remember a child’s trauma extends far beyond the experiences that resulted in them fleeing their homes. The children going to the UK now endured prolonged exposure to stress-inducing conditions in the Calais camp, and will now need to adjust to their new cultural surroundings.

War directly affects millions of children everyday. Exposure to conflict and acts of terrorism can lead to the development of acute or chronic stress reactions. Research also indicates that the psychological impact of war on children is likely to have long-term effects – they don’t simply “grow out” of their stress-related symptoms. Continued exposure to traumatic events, as these children have experienced, carries a cumulative impact too, that can worsen the severity of post-traumatic symptoms.

Funding challenge

The children going to Britain will need the right sort of trauma-based therapeutic support so they can successfully move forward before chronic conditions take hold. However, mental health services in the UK are desperately underfunded. More than 850,000 children and young people have a diagnosable mental health disorder, and half of all lifetime cases of mental illness begin by the age of 14. But just seven per cent of the total mental health budget is allocated to child and adolescent mental health services, with one in five young people refused treatment because they do not meet the criteria for care.

A recent poll of specialist nurses found 70 per cent thought child and adolescent mental health services in England were inadequate due to historic under-investment. The government is under growing pressure to invest more, and it is hoped that the arrival of these children will see additional money allocated to the services. When, or even if, this will happen, remains unclear.

Post-traumatic growth

While many of these children are likely to suffer form long-lasting psychological symptoms, there is a possibility that some may emerge stronger than they are now, benefiting in some way from the experience resulting in positive post-traumatic growth, or PTG. PTG is possible in children who have been affected by war trauma, particularly if they are young, as they are more open to learning and change. Interestingly, research has revealed that even the negative aspects of PTSD do not “block” growth when children are placed in a supportive environment – found to be the most conducive thing for PTG.

Receiving the proper social support will play an important role in helping these children deal with the psychological effects of war trauma. The complex situation that the young and unaccompanied migrants have faced calls for help that addresses both the trauma and grief, and will secure continuity in their new lives in the UK.

Losing loved ones is just one of many extremely traumatic experiences these children may have faced, and it could prove quite difficult to disentangle the effect of the loss from other stresses and changes. Time does not simply heal the long lasting scars of prolonged stress that they have experienced. However, it is vital that society does not write these children off as ill or broken. With the right support they can lead full lives and make strong contributions in their new homes.

Leanne K Simpson, PhD Candidate, School of Psychology | Institute for the Psychology of Elite Performance, Bangor University

This article was originally published on The Conversation. Read the original article.