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Has the UK squandered its North Sea oil and gas windfall?

In the mid-1970s, Britain found itself in an enviable position. In the words of a report from the New Economics Foundation (NEF), the UK was 'lucky enough to win a geographical lottery…sitting on a vast wealth of fossil fuel wealth'.

At constant year 2000 prices, UK revenues from North Sea oil and gas can be summarised quite succinctly. The numbers are staggering. In brief, revenues:

• Rose from around &16 bn in 1978-79 to a peak of &40 bn in 1984-85.
• Fell sharply after this point to around &20 bn in the early 1990s.
• Before recovering in the late-1990s to an average level of around &30 bn.
• The NEF report adds that these figures do not take into account the VAT revenue of around &6 bn per year.

So, for the past five to ten years, Britain has benefited from its North Sea oil and gas reserves to the tune of around &36 bn every year (and considerably more than this per year in the mid-1980s).

What were these vast sums spent on? It's important to remember that these revenues are a once-only windfall. Once used up, these oil and gas reserves will be gone. It is therefore prudent to use revenues flowing from these assets for the long-term benefit of the nation.

Part of the answer to the question of where the oil and gas revenues have gone lies in the general government expenditure that all of our tax payments go to fund. Public goods such as schools and hospitals may be financed from these sums; new road-building programmes or airport expansion schemes could be funded. With about &1 in every &12 of government revenue coming from the oil and gas sector, it's easy to make a case, as have the NEF, that the UK has become addicted to oil and gas monies.

Another view of the disbursement of these windfall revenues is that governments have failed to invest in long-term solutions to the big problems that the UK faces or will face in the future. Rather than funding the payment of long-term unemployment benefits, or dealing with the huge rise in car traffic on Britain's roads, some argue that money could have been spent more fruitfully to resolve these issues more imaginatively.

The NEF lists a series of investments that could be made with the future proceeds of an Oil Legacy Fund. This fund would apply a windfall tax to the oil and gas companies which have made huge profits out of Britain's North Sea windfall. The list includes:

• Micro, small and medium-scale renewable energy technology programmes to fund innovation and development.
• An advisory service to help local planning authorities cope with new renewable energy programmes. (It's interesting to note that only now is the government thinking of how to get over the problem of local planning regulations in the case of small-scale wind and solar installations).
• An advisory service for householders interested in installing domestic renewable energy projects to find a way through local planning regulations.
• Massive expansion of school bus schemes, to reduce the problem of the 'school run', which causes pollution and congestion on our roads.
• Lowering the age for free public transport.
• Free public transport for adults travelling with their children.
• Cutting the cost of energy-efficient domestic solutions, such as low energy light bulbs.
• Increasing public awareness of current energy use and the ways to improve energy efficiency.
• Helping to set standards for eco-friendly new homes.
• Assisting with fast-track routes to the national grid for renewable energy supplies.

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