Sustaining wealth: simulating a sovereign wealth fund for the UK’s oil and gas resources, past and future

Giles Atkinson and Kirk Hamilton

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Exhaustible resources and the revenues they generate present a number of broad problems for macroeconomic management. For example, tax revenues can be large and highly volatile, and the stream of revenues is finite. An increasing number of countries now view resource funds and/or fiscal rules for resource revenues as the answer to these challenges. In this paper, we explore the consequences for the UK if past revenues arising from the depletion of subsoil assets had been channelled into a sovereign wealth fund. We show that had a decision been made to establish such a fund in 1975, this could have been substantial in size by 2018 (about GBP 354 billion) and, moreover, would have had a number of benefits such as a reduction in volatility of resource revenues flowing to the Treasury. Crucially, the fund’s value would have substantially boosted the size of the government balance sheet, yielding corresponding fiscal benefits. We argue this missed opportunity is underlined further by considering the current debate about shale gas development in the UK. Notwithstanding considerable un- certainties, favourable and optimistic projections for key parameters are required for any shale-based fund to match what we simulate based on past experience for conventional subsoil assets.

Keywords: sustainability; resource depletion; sovereign wealth funds (search for similar items in EconPapers)
JEL-codes: E6 J01 R14 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2020-04-01
New Economics Papers: this item is included in nep-ene and nep-mac
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Published in Energy Policy, 1, April, 2020, 139. ISSN: 0301-4215

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