This shale gas trust fund: no, we won\’t be getting one, not of any size

It\’s mooted that we\’ll get a sovereign wealth fund out of the tax that could be made from exploiting shale gas. I doubt we will you know:

John Hayes, an energy minister, said the Government has not ruled out setting up a fund to allow future generations to benefit from the expected boom in shale gas.

He said shale gas could have a \”profound economic effect\” on the UK, when money is raised from the sale of licences to drill shale gas and extra tax income.

Asked whether a sovereign wealth fund could be set up, Mr Hayes said \”watch this space\”.

There\’s one reason why we almost certainly won\’t. Because the amount of money is trivial:

Experts estimate that Britain is sitting on potential reserves worth £1.5? trillion but probably only 10 per cent or less of these reserves are accessible. Ministers believe it could still provide a substantial economic boost.

So, gross value, according to current estimates, of £150 billion over, erm, 20 years just to keep the arithmetic simple? So £7.5 billion a year? And that\’s gross, not the tax take. There\’s still extraction expenses, distribution and profit to come out of that. We\’re at 0.2, 0.4% of the economy. In government money this is a rounding error. It\’s not even a significant part of the deficit.

What the hell\’s the point of a separate fund for that?

The point here being that the UK is a large economy with a lot of people in it. It\’s not like Norway, inhabited by three people and an elk.

But let\’s leave that aside. Imagine that the number is vast, even in comparison to the UK economy. It\’s say, 50% of UK GDP. It ain\’t, obviously, but imagine. £750 billion a year. At that point, yes, a wealth fund has all sorts of attractions. But as ever the idiot lefties will still be wrong.

They\’ll be saying that it must be saved separately in order to invest in the British economy. You know, to build the renewables grid, or the Severn Barrage, or to truly invest in people with free higher education, or to abolish child poverty. And they\’ll be missing the entire point of such a wealth fund. Which is to ban the use of the funds in the UK economy.

That Norwegian sovereign wealth fund for example. The whole point is that all of it must be invested outside Norway. For the problem that they\’re trying to solve is \”Dutch Disease\”.

Having some vast supply of a natural resource on your territory is great. Just fabulous. But if you start pumping all that money you\’re earning into the domestic economy then the exchange rate rises. The larger the natural resource value the more this becomes a curse. The more you strangle all other domestic industries, kill exports and encourage imports, as that currency rate rises.

So, to avoid this you make sure that you collect the money, Oh Yes Indeed. And then you keep it apart from the domestic economy and go and invest it elsewhere. In France, Germany, the US, China: absolutely anywhere except in the UK economy.

So even if there are vast, comparative to the UK econopmy, amounts of shale gas we still won\’t use such a wealth fund to invest in the UK economy. For the very point of a wealth fund is not to invest in the UK economy: it\’s to ban investment of that cash in the UK economy. And you\’ll be able to tell who the idiots are by whether they call for UK investment of such a fund or not.

By the way, it\’s the first reason why the UK didn\’t do this with North Sea Oil and Norway did. The income for the UK was interesting but not spectacular. It did raise the sterling rate, yes, but the actual amounts weren\’t so bad as to preclude the use of the money domestically. If Norway had done the same they would have no economy at all except for oil by now. Which is why they had a fund and we didn\’t.

Or to put it another way: if there\’s not very much money then you can \”invest\” it domestically. For which you don\’t need a fund. But if you do need a fund, because there\’s lots of dosh, then the whole point of the fund is to make sure it\’s not invested domestically.

2 thoughts on “This shale gas trust fund: no, we won\’t be getting one, not of any size”

  1. Interestingly, the taxes from Shetland’s oil and gas go to the local Shetland Islands’ Council. For an archipelago with 30,000 people, it has remarkably well-built roads, plus seemingly a community centre with a heated swimming pool in every hamlet, and flies in teachers daily to run a secondary school for two pupils in the Outer Skerries. Apparently the reserves are dwindling now, but they certainly benefited from the revenues.

    Point being that these sums of money might not mean much to the UK as a whole, but could mean a lot to Lancashire, for example, if the revenues went there directly.

    Probably a sensible way to overcome opposition from the local anti-fracking cranks – fracking will mean massive wonga for local services.

  2. Actually, Sandman, I believe you will find that no taxes go specifically to the Shetland Islands. To compensate the islanders for having a socking great oil terminal in their midst the oil companies agreed to pay a levy into a charitable trust set up for the purpose. This trust then spends money on community projects.

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