This converts a tweet-rant [trant?] into a quick post.
I’m against George Osborne’s reported proposal for a Northern Sovereign Wealth Fund to ring-fence public proceeds from developing shale gas reserves. Or, in fact, against any localised sovereign wealth fund for any purpose whatsoever.
First, where would it end? Why not a SWF to stash premium London business rates, accruing to Londoners present and future? Or to put aside financial services profits? Are Northerners who got out of bed one day realising “there’s shale in them hills” any more deserving than those in Kensington who woke up realising they were in a miraculously prosperous metropolis? Ultimately, why not an SWF for every individual to stash all the fruits of their labour, handing nothing over to the centre? For that matter, why not a SDF – sovereign disaster fund – to ensure that somewhere finding itself an economic deadzone is not helped by the rest of us, but the costs are instead carefully applied to future generations of deadzoners? Regional wealth accumulation mitigates against solidaristic risk sharing, not just across regions, but, inevitably, across income groups and occupations.
Second, establishing the SWF goes against the existing social contract. The fact that the North has a functioning state that could attract developers of shale gas is due to our collective efforts over the decades to keep one going. Only fair that the rest of the country should share in the good luck when shale is discovered and attracted.
Third, picking out shale gas is going to aggravate debates about what was done with past North Sea Oil revenues, and what may be done with them in the future. A Scottish SWF? Or should that be a Shetland SWF?
Fourth, if Northern shale proceeds are to be set aside from now on, why not also government debt incurred on account of public spending obligations in the North? If this wasn’t done, then….
Fifth, a Northern SWF, if operated credibly (ie it were impossible to raid the piggy bank in the future) would reduce the capacity of the centre to borrow to, for example, use automatic stabilisers or discretionary fiscal policy to smooth through the business cycle. [That is, relative to the situation where the centre gets all the shale revenues.]
Sixth, would such an SWF be liable for a disproportionate share of any climate levies we might agree to if we could ever get our global act together? I’m told that there are already more oil/gas reserves than can be burned through using current technology without crossing the point of disaster and no return regarding climate dynamics. So presumably any SWF must ensure that control over whether the stuff is extracted at all is vested in all of the UK. We don’t want the North to be able to sabotage what nobility in global climate policy we could somehow muster.
These things said, it would be fair enough to set aside what revenues were needed to deal with any local adverse effects of shale extraction [net of benefits due to the jobs and higher earnings it would bring]. But I doubt that a new institution is needed to do that.