While Norway built a $2 trillion fund, the UK squandered its North Sea windfall.
The United Kingdom has oil in the North Sea. But it chose not to think about this resource in the long term, treating it as a temporary source of revenue rather than an opportunity to build lasting wealth. Already in the 1970s, it was clear to some economists that North Sea oil represented such a unique opportunity.
In 1974, Gavin McCrone, a senior economist at the Scottish Office working for the British government, prepared an internal report for ministers in Westminster. The report assessed the economic implications of North Sea oil for an independent Scotland and concluded that the revenues were far larger than previously estimated. McCrone warned that this windfall represented a historic opportunity for lasting prosperity, one that could transform public finances if properly managed. The report remained classified for 30 years. When it was revealed in 2005, it became clear what a strategic mistake it had been to ignore its proposals.
Such a mistake is visible in Norway, which chose to manage its oil revenues in a completely different way from Britain.
Despite energy prices rising following instability in the Middle East, Prime Minister Keir Starmer’s government has adopted a contradictory policy. It restricts new oil and gas exploration in the North Sea while maintaining one of the highest tax burdens in the world on the sector. The tax on energy profits approaches a total of 78%. Energy bills have risen significantly since the Labour Party took office and are forecast to increase by a further 18% in July.
Although new licenses would not solve the energy crisis in the short term, the North Sea is a mature basin whose production peaked in 1999 and today stands at only 20–23% of that level, with around 93% of recoverable oil and gas already extracted. There are still discovered fields with known resources and nearby infrastructure that remain undeveloped. The decision not to issue licenses—political, not economic—accelerates an inevitable decline without leaving practically anything in return. There is no sovereign wealth fund, no significant revenues to finance the energy transition, and no strategic reserve against imports.
However, the problem did not begin with Starmer. For 50 years, Labour and Conservative governments alike treated North Sea revenues as ordinary current income. The money came in and went out quickly: in the 1970s, it helped fight inflation and strikes; in the 1980s, it supported reforms; in 2008, it helped during the financial crisis; and in 2020, it funded pandemic spending. Practically nothing remained. No fund, no reserve, no energy independence.
Norway did exactly the opposite. In 1990, when revenues were not yet enormous, it created the Government Pension Fund Global and protected it from short-term political volatility. The established rule was to save most of the oil revenues. Once created, the law made it difficult for subsequent governments to reverse it.
Today, the Norwegian fund is worth about $2.2 trillion, more than $380,000 per citizen. It was built by governments of the left and right alike because institutional rule prevailed over the electoral cycle. The returns, limited to around 3% per year, sustainably finance the budget.
The contrast with the United Kingdom is stark. It is estimated that if the country had adopted the Norwegian model from the 1970s or 1980s, it would today have a sovereign wealth fund worth between £400 billion and £850 billion. That amount would generate annual returns of several billion pounds, enough to cushion energy shocks, help pay energy bills during crises, reduce public debt, or invest in infrastructure and education without fiscal imbalances.
Instead, the United Kingdom spent everything. With no reserve, it became more dependent on imports, including gas and oil from Norway itself. The country that saved its money now sells energy to the country that spent its own. This dependence increases vulnerability to global price shocks and reduces the government’s ability to respond.
As explained by 1986 Nobel laureate in Economics James Buchanan, in Public Choice Theory politicians are rational agents who respond to incentives. The main incentive is to win the next election, not to prepare for the next generation. Spending on visible projects brings votes. Saving for the long term does not. Without strong rules that limit discretion, present consumption prevails.
Starmer considers that his approach, restricting licenses combined with heavy taxation, means leaving the fossil fuel cycle. But that cycle was not created by the market. It was built by decades of political intervention, exactly like the one now being deepened. Fewer licenses and higher taxes mean less investment, lower future production, and greater dependence on imports. This does not lower energy prices in the short term, because prices are global, yet it worsens the country’s structural vulnerability.
The real failure was never the amount of oil extracted, but the way the money was managed while it existed. McCrone warned Britain in 1974. He was not heard.
Over 50 years later, the United Kingdom has lost a unique opportunity and now finds itself without a sovereign wealth fund, without a strategic reserve, and without energy independence. The consequences are an economy more exposed to external shocks and less able to protect citizens when global prices rise.
The lesson from Norway shows that good institutions matter more than political populism and the next emergency. Faced with the inevitability of resource scarcity, action must be pragmatic and future oriented, limiting short-term political discretion.
