Asset accounting, fiscal policy and the UK’s oil and gas resources, past and future

The UK has been an exception to the trend of channelling revenues arising from the depletion of subsoil assets into a resource fund. In this paper, we construct an asset account for the UK’s oil and gas resources to evaluate the cost of this exceptionalism and, looking forward, the implications of establishing a fund now. We show that had a decision been made to establish a resource fund in 1975, this fund could now be substantial in size (about GBP 280 billion in 2010). A significant contributor to this result is the historical efficiency of the UK fiscal regime in capturing oil and gas rents, as we demonstrate. A further benefit of the resource fund would have been a reduction in volatility of resource revenues flowing to the Treasury. An ex post cost-benefit analysis of the simulated fund suggests it could have been a sound public investment. However, our simulation of a future resource fund based on (possible) shale gas and oil revenues shows that it could reach a size similar to the 1975-2010 fund only under optimistic assumptions about prices, revenues and economic reserves.