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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Industrial Strategy: Ensuring digital skills are included

The opportunities for efficiency, adaptability and growth offered by digital skills have never been so important to British businesses. The New Statesman asked a panel of experts, including Digital Minister Matt Hancock, Tinder Foundation CEO Helen Milner, Tech City CEO Gerard Grech and Google Policy Manager Katie O’Donovan, to pinpoint the weak spots and the opportunities for a smarter digital skills strategy.

British people spend more per capita online than any other country in the developed world. With 82 per cent of adults using the internet on a daily basis and more than 20 per cent of retail sales taking place online, it would appear that most British businesses are digitally capable. A closer look, however, reveals a significant digital skills gap between larger companies and the small businesses that make up 60 per cent of the private sector – comprising a workforce of over 15 million people, with a turnover in excess of £1.6trillion. Of these small enterprises, a third don’t have a website and more than half are unable to sell goods online. So, are digital skills taking priority in the government’s industrial strategy?

Matt Hancock, Minister of State for Digital and Culture, said digital education from an early age will be a cross-party objective for years to come: “We’re making some progress on this, and one of the most exciting things we did in the last parliament was to put coding into the curriculum from age eight. We’ve recognised that there are down-the-track requirements for digital skills, as much as with English and Maths, and we’ve got a huge array of initiatives to corral the enthusiasm for digital and make sure that it is best used.”

Hancock added that participation in the digital economy is important at every level of business and society: “I can group the facts and figures; 23 per cent of people currently lack basic digital skills, and about 90 per cent of new jobs now need some form of them. I think that what we’ve learnt following the Brexit vote is that the need to engage everybody is more demonstrable than ever before. This is a very important part of the Prime Minister’s agenda, and wider digital engagement is a key part of the broader issue to make an economy that works for everyone.” 

It is this wider opportunity to access and education that forms the bedrock of a new partnership between Google and the Tinder Foundation, aiming to deliver digital skills training to those in society who are most in need. Cue the Digital Garage. The project sees community organisations across the country provide skills support to small businesses, sole traders and indviduals, helping them to make the most of their resources.

Katie O’Donovan, Policy Manager at Google, explained: “Google has a longstanding commitment to train 250,000 people across the UK in digital skills. Since launching the Digital Garage in 2015 we’ve provided mentoring and digital skills training in Leeds, Manchester, Birmingham, Newcastle and Glasgow.  But as the UK faces a new chapter we want to ensure, whether you’re a student looking for your first job, a small business looking to attract new customers or a musician looking to promote your music, the right digital skills are freely available in your local community.

Tinder Foundation CEO Helen Milner recognised that a wider proliferation of digital skills would release a surprising amount of value into the economy. “Some of our research showed that every £1 invested in growing people’s basic digital skills put £10 back into the economy. But it’s not enough to save money - you’ve got to show how you can make money out of it as well.”    

The Labour MP for Aberavon, Stephen Kinnock, has seen at first hand the benefits of support for digital skills, and welcomes opportunities for partnership in his constituency. The shift from manufacturing, he accepts, needs direction and following the depletion of his local steel works he views digitisation as “the only way forward.” Kinnock added that exciting projects such as the Swansea bay region or ‘internet coast’ becoming a testbed for 5G could serve to re-energise communities which are in many ways in a state of decline. Kinnock said: “I’m absolutely delighted that we’re going to have pop-up versions of the Digital Garage in Port Talbot.”

CEO for TeenTech Maggie Philbin, meanwhile, stressed that digital education at school level must be taught through the lens of practical application. She warned: “Many young people aren’t greeted by any coherent messaging in school, so they don’t see why they’d need digital skills in the workplace. We’ve got to start getting a better message across and improve the opportunities for actual work experience that harnesses these skills.”

Karen Price, CEO at The Tech Partnership shares this view. For Price, adapting apprenticeships to incorporate digital skills will help to inspire a culture of innovation. She suggested that “if that's part of an apprenticeship that could be polished to use in a business environment, you'd have a digitally capable young person who could probably move that business on in a different way.”

Nick Williams, Consumer Digital Director for Lloyds Banking Group, views improving people’s digital skills as a matter of urgency and brought up research conducted by the company’s new Business Digital Index for 2016 which found that 38 per cent of small businesses and 49 per cent of charities are currently lacking digital maturity. “It’s no longer a matter of choice,” Williams said, “for organisations to survive, we must focus on a digital message.  Technology’s moved on and people just haven’t kept up. We have to show how these new skills can translate to greater productivity. Ability and access are the two variables to address. We are on the brink of going down the route of a digital divide – those who are capable and those who aren’t – and we’ve got to stop that.”

Rachel Neaman, Director of Skills and Partnerships at Doteveryone, was quick to pick up on this point. She warned that any digital training must not simply be for future generations’ benefit, but also be afforded to those already in work. “What are we doing for the people who currently lack these skills? How do we stop people from being left behind?” Neaman called for an “equal emphasis” on updating and upgrading the existing workforce. Julian David, the CEO at Tech UK, was also keen to highlight that digitisation is “an ongoing process” and therefore “retraining” at regular intervals is needed to cope with a continually evolving demand.

While Hancock spoke of a “unit-based standard learning system”, similar to that used in American schools, to help apply digital skills training where it is most appropriate, IPPR North researcher Jack Hunter said there were real opportunities to be grasped in the coming devolution agenda: “The new mayors that are coming in next year to drive the agenda and economic growth are going to be getting a lot more funding around a variety of different skills streams that feed directly into the digital programme.”

The panel agreed that the digital divide will only grow wider if action is not taken. Director of the Action and Research Centre at the RSA Anthony Painter said that society is being split into two camps: “the confident and creative, and those who feel held back.” Painter recommended that the latter group are given a fresh chance at being empowered digitally. He said: “They don’t tend to use the internet for professional development, whereas the others do. We’ve been having a look at this locally by creating a ‘City of Learning’ which combines a digital platform built around open badges which have micro-accreditations for learning; things that if you get someone’s passionate interest and then start feeding into more formal learning opportunities then you wrap around that a sort of city-led campaign which lets them identify with a common cause – we’re a learning city.”

Tech City UK CEO Gerard Grech concurred and went to explore the link between a strong web presence and business expansion or improvement. The problem identified is that many businesses may not realise the extent of their digital capabilities and thus run the risk of missing out. Grech said: “If you ask a window cleaner if they are a digital business, they might say no, but if you ask how they might go about quoting someone, they could find the address on Google Maps or get the Street View. That’s the idea, to show how digital can be used for them.”

Ultimately, the panel concluded, that the enthusiasm to add a digital depth to Britain’s talent pool was validated by its potential advantages. “A lot of the major challenges facing the economy,” Painter summed up, “are actually rooted in skills. Whether it’s the challenges of Brexit or the challenges of broadband, I think if you fix the skills, everything else falls into place.” The panel agreed that any government has a responsibility to champion digital strategy throughout society, regardless of location or economic standing, and equip businesses with the digital skills required to perform at their best.  

The round-table discussion was chaired by Kirsty Styles.

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