My Lords, the purpose of the amendment is simple, although the policy implications are perhaps more complex. It is to insert a new clause that will provide a statutory framework
for the establishment of a UK sovereign wealth fund to receive a proportion of the Government’s revenues from fracking and shale gas.
I tabled a similar amendment in Committee on 14 October and I hope that my noble friend will forgive me if I say that I did not find her response entirely convincing. I have therefore retabled the amendment. It is primarily a Treasury matter, of course, and I am therefore pleased and grateful to see that my noble friend Lord Deighton has taken up the cudgels and will reply to this debate. I am grateful also to my noble friends Lord Jenkin and Lord Teverson, and the noble Lord, Lord Whitty, for adding their names in support.
The background to and reasons for my amendment are as follows. This country has been blessed with a wide range of natural assets. These can be divided into two parts, the finite and the infinite. The infinite includes the sun, rain and wind—all of which we can harness in various ways. However, there are finite resources. For example, our huge reserves of coal that powered the industrial revolution for a time made this country the workshop of the world. In the 1970s, we discovered another great gift from nature—North Sea oil. At the time of the original discovery, it was expected that by now it would all have run out. In the event, because of improved technology and higher oil prices, despite our having extracted some 40 billion barrels of oil, it is estimated that at least some 16 billion barrels remain recoverable. But—and this is the important but—one day the oil will inevitably run out and this gift from nature will have been entirely consumed.
Successive Governments and the country have benefited hugely from this oil. Estimates of the overall revenue run as high as £400 billion, but every penny of that revenue has been spent. A debate on whether it has been wisely or foolishly spent would occupy your Lordships’ House for many a long day. That is not the point this evening. The point this evening is that the revenue has all been spent and nothing has been put aside for the future.
On the other side of the North Sea, Norway, which has also benefited from North Sea oil, had an extremely fierce political debate about how to use its proceeds. In the end, it was decided that it should establish a sovereign wealth fund. Norway has a much smaller population than we do—about 10% of that of the United Kingdom—and its oil and gas reserves are commensurately larger. Therefore, I do not wish to push the metrics too far. The fact is that in the 20 short years since revenue started to flow to the Norwegian sovereign wealth fund, it has grown to $800 billion—£500 billion. At this point, I should apologise to Members of your Lordships’ House because when trying to send a letter to you from Chicago I mixed up my “millions” and “billions”. The figure is, in fact, £500 billion, not £500 million, as in my original letter. That is not the end of it. It is confidently expected that the $800 billion will reach $1 trillion in the next few years. The fund generates between £20 billion and £25 billion every year. That is a lot of money. It is roughly two-thirds of our annual defence expenditure or what we expect to spend on our nuclear deterrent over its life. It is roughly 10 times what the Leader of
the Opposition thought was necessary to save the National Health Service. He referred to £2.4 billion in his speech at his party conference.
In this country, we took a different approach, and the decision is irrevocable. Every penny that we receive in future will be spent until the oil finally runs out. But we now appear to have received another potential gift from nature: natural gas extracted as a result of the development of the new fracking process. I argue that we should learn from the decisions of the past, as well as from the example set by Norway, and provide for the establishment of a sovereign wealth fund to receive at least part of the proceeds from shale gas exploration and development. I do so on three principal grounds. First, the costs of infrastructure projects, which are so essential to this country’s long-term prosperity, are notoriously difficult to forecast. The returns from a sovereign wealth fund would help to plug some of these overs and unders.
Secondly, a sovereign wealth fund would provide some insurance against future uncertainties. Governments are constantly urging us as private citizens to save more to guard against the rising costs of our increasingly long lives. We are told that we must forgo current consumption individually for our long-term benefit. It would surely be no bad thing if the Government occasionally practised what they so assiduously preach.
Thirdly, and most importantly, it is about intergenerational fairness and equity. These gas reserves have built up over millions of years. Are they properly ours to plunder and spend in a couple of generations? Should we not ensure that some parts of the proceeds are left for those who come after us?