THE first thing you ought to know about Scotland’s oil money is that it was never officially recognised as such when it was swallowed up by government coffers.
This, explains energy historian Dr Ewan Gibbs of Glasgow University, was the Treasury’s first victory.
“There is no special category of North Sea oil revenue in terms of British accounting,” he said.
“The debate over North Sea oil revenues and how they should be treated was won by Treasury. That was partly in conflict with Scottish nationalists but it was also in conflict with the left-wing of the Labour Party, particularly Tony Benn and his allies in government in the 1970s.”
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The Treasury simply saw it as “dangerous” for the money to be specially marked out – as Labour and the SNP wanted because it wanted to cling on to the political power of such an important resource, Dr Gibbs added.
What this means in practice is that, unlike in Norway where oil money was invested in a fund for the country’s benefit, oil revenues simply poured into the Treasury as the government embarked on the monumental task of restructuring the UK economy in its entirety.
While the Treasury batted away calls from Labour and the SNP for oil to be ringfenced and invested, tax receipts from oil revenues were flushed into Whitehall’s spending pot – and ultimately used to fund Margaret Thatcher’s seismic transformation of the UK economy – changing Britain forever.
As most readers will know, Thatcher took over a very different country from the one she left behind after 13 years in power.
Traditional industries were abandoned, and trade unions crushed. Huge swathes of Britain still suffer from the scars of Thatcher’s ideology, which saw the City of London boom as bankers and speculators conjured millions out of thin air.
But this revolution came at a price. Social security costs soared as entire communities swapped coal for dole with the number of unemployed people reaching nearly three million before Christmas 1981.
In his budget that year, then-chancellor Geoffrey Howe introduced a new 20% tax on North Sea oil – which he estimated would bring in around £1 billion to the Treasury.
The oil was at its most valuable in the early-eighties as “rapid deindustrialisation was unfolding across Scotland and Britain”, according to Dr Gibbs.
He added: “It’s completely fair and accurate to say that oil revenues, in effect, made it easier for the Thatcher government to finance drastic transformations that had exceedingly negative consequences for people, especially in the industrial regions of Scotland, England, Wales and Northern Ireland.
“It isn’t unfair to say that people experienced job losses and unemployment in shipyards, coalmines, and steel-making communities, in part, because North Sea oil revenues made it possible to oversee a particularly drastic form of economic changes.
“At the peak in the early 80s you’re looking at revenues that are worth 7% of UK economic activity, 10% of fiscal revenues – around one-in-10 pounds that the UK Government took in in taxation by 1984. That’s hugely important.”
And while soaring oil revenues fuelled a bonfire of UK industry, the cash kindled an explosion in the City as ministers tore up regulations and British banking came roaring into life as we see it today.
Dr Gibbs added: “The ‘Big Bang’ and the toleration of huge flows of money in and out of the City of London every day was possible in part due to the security that North Sea oil provides.”
The SNP and Labour saw this as frittering away a precious resource as the money never went to a specific purpose.
Contrast with Norway where oil money is held in a state-run investment firm which is used to maintain a high level of public spending in the country – though only a small percentage is siphoned off every year – while the rest goes into global markets which see its value secured for years to come.
Scotland’s oil ultimately helped finance the government’s debt obligations, meaning they could avoid hiking taxes and cutting spending in many areas – so avoiding even more economic pain – while embarking on their ambitious ideological project of transforming Britain.
If you are of the view Thatcher’s legacy is one of a runaway financial sector, short-term economic thinking and ultimately, the destruction of the social contract – these thoughts become all the more depressing when you realise Scotland’s oil greased the wheels of her revolution.
