Energy bills for British households are set to skyrocket this winter. Starting from October 1, the “ceiling price” of residential energy has jumped sharply. The annual electricity and gas costs of a typical household (2.36 people per household in the UK in 2021) are about 2,500 pounds. This is already with government subsidies, otherwise it would be much higher.
According to estimates, the subsidy given by the government will cost £42 billion in just six months. Where will the money come from? Many have suggested a windfall profit tax for energy companies. Britain’s North Sea oil fields are still operating and are now pumping at full capacity, reaping huge profits from soaring oil and gas prices, with the government estimated to collect £30bn from the windfall profit tax. But Britain’s new Conservative government rejected the proposal, and the £42 billion hole would have to be filled by raising basic taxes or cutting public spending. The financial turmoil in the UK these days is closely related to these measures of the new government.
Compared with Norway, which is across the sea, the dilemma faced by the United Kingdom can be described as “same oil but different fate”. I heard on a radio program not long ago that the Norwegian government’s huge income from rising international oil and gas prices will reach US$90 billion this year. In stark contrast, the UK’s financial benefits from North Sea oil fields during the same period were only about 8 billion pounds.
The oil and gas resources in the North Sea are concentrated on the border of the exclusive economic zone between Norway and the United Kingdom, and are almost equally shared by the two countries. Why are the circumstances of the two countries so different? This has to start with the discovery of oil in the North Sea.
In the past, Britain and Norway were oil-poor countries. At the end of 1969, oil fields were discovered in Norway in the North Sea and in the exclusive economic zone of the United Kingdom. However, the attitudes of the two countries towards oil exploitation are very different. The United Kingdom immediately began to issue mining licenses to multinational oil companies, and the government did not intervene in mining. Licenses are also being issued in Norway, but at the same time the Norwegian parliament has passed a bill to bring state-owned companies into mining—a major decision whose history was captured in the recent Norwegian TV series Lykkeland (Lykkeland).
Interestingly, at that time, there were already large oil companies in the UK, such as BP and Shell, which had obtained exploration licenses together with the American oil giants, while the state-owned enterprises that took over oil exploration in Norway had always been engaged in hydropower and lacked experience. Cooperate with multinational companies to learn mining technology.
Since then, Britain and Norway have embarked on two different paths. When the Labor Party was in power in 1975, the United Kingdom also established a state-owned enterprise specializing in oil exploration in the North Sea, but it was privatized immediately after the Thatcher government came to power in 1979. After that, the only way for the British government to obtain benefits from the North Sea oil fields was to collect taxes. Even so, the North Sea oil fields brought a lot of income to the British government in the 1980s, but they were all used for fiscal expenditures at that time. Leave.
At the same time, more than half of Norway’s oil and gas exploration is operated by state-owned enterprises, and they have begun to retain part of their income as financial reserves to prevent the development of the country’s economy due to excessive dependence on oil (the so-called “resource curse”). Norway set up a sovereign fund in 1990, and its scale has reached 1.3 trillion U.S. dollars.
The United Kingdom has not spent all its oil revenue, but this depends on the determination of local governments. The northernmost Shetland Islands of the United Kingdom are adjacent to oil fields in the North Sea. The local government negotiated with oil companies and set up its own “sovereign fund”, which now has about 500 million US dollars. Although this cannot be compared with Norway, it has brought many benefits to the more than 20,000 local residents.
From the different ways in which the UK and Norway deal with North Sea oil field revenues, we can see the differences in political concepts, economic systems, and cultural concepts. Expense subsidies pay the bill, and at the same time hope that the price of oil and gas will drop soon.
