What actually happened to Scotland's trillions in North Sea oil boom?

We still are. Last year, our total revenue from the North Sea was just £0.2 billion – 300 miles to the north east, to Norway and Stavanger, the country’s oil twin with Aberdeen producing almost exactly the same amount of oil, total revenue was £9bn.

The difference? Norway’s oil and gas industry is state-owned. Ours is privatised.

When that anonymous graffitist was spraying his message, North Sea production was still to peak, which it would do at the end of that decade. But while it was clear that the wealth from it had artificially boosted the economy, that was coming to an end.

The North Sea oil fields are geographically and equally divided between the UK and Norway. In 1990, when we were spending the windfall, Norway began to tuck away its cash into a rainy-day fund – what we would call nowadays a sovereign wealth fund –called the Oljefondet, more formally the Government Pension Fund Global. It began to invest in international markets, in property – a wedge of Regent Street in London and some of the best property in Paris.

The $1.3 trillion fund

IT is now the largest such fund in the world, with over $1.3 trillion in assets, holding 1.4% of the world’s stocks and shares, worth about $248,000 for each of the 5.3 million Norwegian citizens. Depending on which metric you choose, Norway is either the second-most wealthy country in the world, per capita, or fifth. Britain, if you choose the most favourable measurement, might just scrape into the top 20. The reason is that while Britain squandered the profits, the Norwegians banked theirs.

The first major British field to be exploited was the massive Forties, which propelled us into the top rank of oil-producing countries. Half a century ago it seemed that only a few odd zealots were concerned about the damage to the ozone layer and the climate warming effects of burning fossil fuels – now, of course, it’s the talk of the COP26 steamie. Although, as the old line has it, when all’s said and done, there’s more said than done.

But even then there had been a cautionary warning. In 1968, the Stanford Research Institute reported that the release of carbon dioxide from burning fossil fuels could carry harmful consequences for the planet. It would take decades for public awareness to catch up.

Rise of the SNP

IN 1970, the SNP were still, politically, on the margins. They took just one seat in the June General Election with an 11.4% share of the vote. But that was more than 6% up on 1966 and the rise was beginning.

The party grasped the importance of the political heft of oil. The SNP slogan became “It’s Scotland’s Oil”.

But, of course, it wasn’t. It was, and is, owned by the oil companies and their investors. In 1975, Harold Wilson’s Labour government had set up the nationalised British National Oil Corporation but when Margaret Thatcher’s Conservatives took over in 1979, she began a swathe of privatisations. Britoil, the exploration and production arm of BNOC, ended up in the hands of BP, in a fire sale, for £434 million.

In 2008, John Hawksworth, chief economist at PricewaterhouseCoopers wrote a paper called “Dude, where’s my oil money?”

His conservative estimate was that if the oil profits had been invested in a sovereign fund, like in Norway, it would have then been worth £450bn. Others said that could be doubled.

So, where did the lost billions go? According to Hawksworth: “The logical answer is that the oil money enabled non-oil taxes to be kept lower.”

When the oil and the money gushed in the 1980s and 1990s, it went in tax cuts. Thatcher’s chancellor, Nigel Lawson, slashed income and other direct taxes, benefiting the wealthy. The top rate came down from 60p in the pound to just 40p by 1988. The basic rate of income tax was also cut, but it had little effect on raising the poor out of poverty because Lawson also put up VAT.

What did the beneficiaries of the Great North Sea Giveaway do with it? “They used the higher disposable income to bid up house prices,” said Hawskworth.

Thatcherism

WHILE Thatcher’s children were spending it, the Norwegians were husbanding it. In 1974, the Oslo government had set down 10 “commandments” to ensure that oil was kept under democratic control and decreed that the wealth should be used to develop a “qualitatively better society”.

This was the mirror image of Thatcherism. There was no such thing as society, she said in 1987.

“There are individual men and women and there are families and no government can do anything except through people and people look to themselves first.”

Fast-forward to the end of 2013 when, in the run-up to the independence referendum, the SNP government published a hefty white paper, Scotland’s Future. In it, while it was said that oil would be a “bonus”, it was predicted that for at least two years the cost of a barrel would remain stable at around $110. The crystal ball could not have been more cracked.

A glut of energy, in part caused by US shale gas extraction and by Opec refusing to cut production, saw the price fall by more than half, to $40, in 2015. The opposition, Labour and Conservative, used this to brutally beast the SNP’s economic case for independence.

Revenues diminish

IT wasn’t exactly fair, but then you don’t expect that in politics. In response to falling oil prices the Conservative UK government cut petroleum revenue tax from 50% to 35% and, a year later in 2016, to 0%. The supplementary charge, over the same period, was cut from 62% to 10%. And oil revenues, predictably, shrivelled.

Across the sea and for the same period, Norway retained taxation on oil and gas at 78%. In two years of rock-bottom prices, Shell paid £4.589bn to Norway. By contrast, and because of the UK oil tax system, the company was given £179m in tax rebates. In the 24 countries Shell then operated in, every country, bar the UK, made the company pay taxes. It was the same story with BP, formerly British Petroleum, which was largely state-owned until privatisation. In those two years, and in the 23 countries in which BP operated, the UK was the only one where the company received rather than paid tax, given £342m in rebates.

Taxation of oil companies remains as it was in 2016. In 2020, UK total revenue was £0.2bn – after tax repayments to companies of £250m – down from more than £10bn in the peak years of oil flow in the 1980s.

The £51 billion cost

IT won’t get any better for Britain. The UK Government estimates that between now and 2065, the cost to the industry of decommissioning the North Sea rigs and infrastructure will be £51bn at 2019 prices – and that we’ll give them more than £19bn in tax allowances.

The Norwegian sovereign fund didn’t just invest abroad – it helped oil workers losing jobs, and it transformed home energy usage so that 98% of it is now provided by renewables. Like a junkie turned pusher, the country now exports nearly all of its oil and gas. It is the UK’s main supplier. It has now opened its latest state-controlled Johan Sverdrup field which will provide around one-third of all Norway’s oil production. Much of it will flow to Britain.

About 75 miles west of Shetland, 3,000 feet below the sea, the Cambo field, in UK waters, waits to be exploited. Or not. The opposition from climate activists is fierce and unrelenting.

There are about 800 million barrels down there, at $83 per barrel at today’s prices. That’s buried treasure worth $64bn. But even if it goes ahead, the evidence is that the Treasury will see little of it.