The £450bn sovereign fund that never was

If only we'd had the oil riches to build up one of those nice sovereign wealth funds. Hang on...

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Last Updated: 31 Aug 2010

After a period in which all these mysterious sovereign wealth funds have been busy snapping up large chunks of the global economy, it’s tempting to look enviously eastwards and wonder what the UK would have been able to do with such a huge cash pile. But as a new report from PricewaterhouseCoopers points out, it’s not that hard to imagine. The discovery of North Sea oil gave the UK an opportunity to build up its own SWF – but while others squirreled away their oil proceeds, we thought it would be much more fun to spend it all instead. And now it’s too late to change our ways.

According to PwC, if we’d decided to stash our North Sea oil proceeds away for a rainy day, we could now be sitting on a cash pile of £450bn. That’s not only bigger than the fund controlled by Norway (who sensibly put their petrodollars aside to pay for their pensions), it’s also bigger than the SWFs of Qatar, Kuwait and Russia combined. But instead, the government chose to go down a different route – it used the proceeds to cut taxes and increase public spending, in the hope of stimulating the economy.

There are two obvious caveats here. One, the tactic arguably worked – without this boost, high taxes and low spending might have kept the economy in the doldrums throughout the 80s. What’s more, putting all this money straight into the bank would have been a political nightmare. We suspect Mrs Thatcher may have had a hard job convincing the electorate that it was fine to suffer some short-term pain, because 20 years later we’d be able to hoover up half of Wall Street on the cheap.

The libertarians among you might even argue that it's better to effectively hand the money back to individuals, rather than allowing the government to manage it. But as PwC's macroeconomic guru John Hawksworth points out, we live in a world where 'myopia and lack of self-control seem to be ever present features of the affluent society' - in other words, we can't always be trusted to manage our money properly. Perhaps a government-run fund would have helped encourage long-term investment, sharing the rewards with future generations. ‘Without such a fund, it is hard to dispel the suspicion that, in 30 or 40 years time, many of us may be sitting around looking enviously at the Norwegians and wondering: where did our oil money go?’

Gordon Brown must miss the good old days when Britain could just top up its coffers by sailing off and conquering someone...

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