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Andrew Glyn

Six Reasons Why North Sea Oil
Will Not Halt Britain’s Decline

(September 1977)

From Militant, No. 374, 23 September 1977, p. 7.
Transcribed by Iain Dalton.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

North Sea Oil has come to be like Britain’s El Dorado: a province of abundant wealth holding out the promise of golden salvation – but unfortunately entirely mythical.

It is argued, both on the right and left of the labour movement, that North Sea Oil will provide the means of solving Britain’s economic crisis.

Jim Callaghan, for instance, speaking recently in Cardiff, said that “Thanks to a combination of factors, including the great bonus of our own oil, Britain is about to enter a decade of opportunity.”

But the hard-headed representatives of big business, having overcome their initial enthusiasm at the unexpected field of profits opened up in the North Sea, are now taking a more realistic view.

“While North Sea oil,” comments the Financial Times (8.9.77), “is a fairly unambiguous benefit – one need only imagine our present condition without it to see this – it does leave most of our fundamental problems largely untouched.”

In other words, North Sea oil is a bonus without which British capitalism would be in an even worse position than it is. But against this “optimistic” view, other capitalist economists, notably Wynne Godley of the Department of Applied Economics at Cambridge, are now arguing (as we shall see) that North Sea oil will actually have an overall adverse effect on the British economy.

From the beginning, however, this paper has pointed out that a strategy for economic recovery based on the benefits of North Sea oil must be illusory.
 

Marginal

Production of oil from the North Sea is now about 13m tons, or a seventh of Britain’s present requirements. By 1980 it is estimated that this will rise to between 95m and 115m tons, more than enough to meet total home demand. It would be the equivalent of about 10% of current exports on 2½% of Gross National Product.

While certainly easing Britain’s balance of payments problem, the oil will have a marginal effect on other problems. Here we will simply summarise six main reasons why the oil will not rescue British capitalism from continued, catastrophic decline.

1. The improvement from North Sea oil will hardly be any greater than the effect of the balance of payments that has already come from North Sea gas. The balance of payments would now be much worse without gas, but the benefits from gas have not led to any improvement in the performance of British industry.
    
2. North Sea oil will do no more than offset the impact on the balance of payments of the quadrupling of the price of OPEC oil in 1973. Only somebody who argues that there was no crisis in the British economy before 1973, and that all the problems stem from OPEC price rises can consistently argue that North Sea oil will solve the crisis now.
    
3. In fact, overall, North Sea oil will not even fully offset the rise in oil costs since 1973. This is because the offshore oil has been developed by foreign, mainly US, oil companies using largely imported machinery. This machinery will have to be paid for, and the US companies will send home a large proportion of their profits. As a result, North Sea oil will cost more in foreign exchange in 1980 than OPEC oil cost in 1973.
    
4. Apart from repatriated profits and payments for equipment, a further chunk of North Sea oil revenues will be required to pay off the foreign debts built up in the last four years in a desperate attempt to prevent the complete breakdown of the economy. According to the Governor of the Bank of England, some $20 billion falls due by 1985.
    
5. The profits resulting from North Sea oil will be very big: around £2½ billion in 1980, or 1½% of Gross Domestic Product. This compares with company profits at the moment of £9 billion. If all the North Sea oil profits were invested in British industry – something implied by those who argue that the oil will benefit the rest of industry – that would go over half way towards doubling manufacturing investment.
   
   But there is no likelihood of this happening. Nearly two-thirds of these profits will go abroad to foreign oil companies which took the biggest share of the licences. They will have no reason to invest these profits back into British industry with its low level of profits. Nor is there any guarantee that British firms making profits from the North Sea will invest their profits here. The big monopolies, whether British or American, will invest wherever they find it most profitable.
    
6. Tax gains from North Sea oil profits will be very small. It is estimated that in 1980 taxes from the oil (even including about £300m revenue from the British National Oil Corporation) will be less than 10% of current revenue.
   
   Although Labour’s Manifesto promised “full government participation with majority public participation”, under pressure from the oil monopolies the government retreated even on its taxation proposals. The Petroleum Revenue Tax is set at the comparatively moderate rate of 45% and is not charged at all if it would drive profits from a particular oil field below 30%!
   
   The recent “participation agreements” do little more than guarantee British access to North Sea oil, at market prices, in case of emergency. Thus while the oil companies are going to be able to reap super profits, the BNOC will get only about a tenth of the profits from North Sea oil in the early 1980s.
    

Pessimism

In addition to these points, however, a number of economists have now come to the conclusion that the improvement in the balance of payments resulting from North Sea oil will not at all be an unmixed blessing for British capitalism. They fear that the consequent strengthening of the pound will lead to an overvaluation of sterling internationally which will actually further undermine the competitiveness of British exports and, far from giving a boost to British manufacturing industry, will actually accentuate its decline.

This view has recently been put forward by Wynne Godley of Cambridge:

“Foreign earnings from North Sea oil could result in a failure of the external value of sterling to fall sufficiently ... Domestic unemployment, on extremely plausible assumptions would reach 3m by 1985 ... Industrial profits would be eroded, and our industry become derelict ...” (Financial Times, 8.9.77)

It is surely clear from all these points that, in any case, if North Sea oil is to make any real contribution to the recovery of the British economy, its development and production must be taken out of the hands of the big oil companies and be placed under public control through nationalisation under workers’ control and management.

But the fundamental point here is that North Sea oil, even in the short run, can be no substitute for socialist measures to tackle the crisis created by British capitalism.

 
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