This post is not party political. Instead, it is intended to illustrate (and very nicely), how different interpretations of history make a big difference to the lessons that we take from events, in this case matters of national financial health. It’s from this weekend’s FT, and is a letter by Phillip Oppenheim. Expect to hear more on this theme of ‘why can’t we be more like Norway’, when shale gas takes off. Economics truly is a “dismal science”:
Sir, Misha Glenny’s assertion that under Margaret Thatcher, Britain decided “to fritter away” its oil revenues “in a binge of tax cuts”, in contrast to Norway’s prudent policy of squirrelling away their revenue in a sovereign wealth fund, has become common currency, rarely backed by figures – it’s time it was challenged. (“In shale, Britain has a second chance to mend its fortunes”, January 18.)
Some facts: UK oil revenues in the 1980s: £166bn real terms – population 56m. Norway’s oil revenues over the past 10 years: £210bn – population 4.9m.
You do the maths, as they say, but I make it that UK per capita oil revenues at their peak were only around 7 per cent of Norway’s. Indeed, Norway’s oil fund was founded in 1996 in part because the income per capita was so massive that the economy would have overheated if the revenue had been kept in Norway. Oh happy, small country!
Factor in the small matter that Mrs Thatcher inherited an economy seemingly in terminal decline, with a serious national debt and penal tax rates in the midst of the cold war – at a time when no one had heard of sovereign wealth funds – and the picture alters some more.
Mrs Thatcher’s policies also included growing the economy by reducing direct tax. True, UK manufacturing went into sharp decline during the early 1980s – partly due to sterling’s oil-related rise. But output, including manufacturing, rose sharply from 1985 and ended the period substantially up – in contrast to the record of the previous or subsequent Labour governments, both of which saw a fall in manufacturing. So perhaps it worked.
Many also ignore the fact that not all oil revenues went into tax cuts. Public spending also rose substantially in reals term under Mrs Thatcher, though not as a percentage of gross domestic product.
The government of 1979-97 made mistakes, but I’m not sure that setting up a sovereign oil fund, which invested among other things in shopping malls and distressed debt – as Norway’s fund has – would have been better than putting the money into the NHS and people’s pockets.