Shale Gas

Lord Hodgson of Astley Abbotts Excerpts

Tuesday 7th March 2017 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I add my thanks to the noble Lord, Lord Truscott, for giving us the chance to debate this important matter. I will focus on one small aspect of the shale gas revolution; that is, the proposal to create a shale wealth fund. I had a very modest role in its creation and I would like my noble friend to update us on progress as far as this is concerned. Progress has been disappointingly slow, like so many aspects of the shale gas revolution, but it is important because its successful creation would be a useful way of bringing uncommitted public opinion on side to support the wider development of shale gas. It would be an example of effective public engagement, to quote the noble Lord, Lord Mair.

The reasons for my interest in this are as follows. I see our natural energy resources coming from two main blocks—infinite and finite. Infinite, obviously, is the energy that flows from the sun, the wind, the waves, the flow of the rivers and so on. The finite resources are coal, referred to by my noble friend Lord Ridley, which for a time made this country the workshop of the world, and in 1970 of course we received the gift from nature of North Sea oil. It was assumed that the oil would have run out by now, and at some point it will run out. We have been able to extract more than we thought we would because of technology, but it will eventually run out.

Successive Governments and the country as a whole have benefited from the oil. Estimates of the revenue flows are around £400 billion. But every penny of that revenue has been spent—every penny. The debate on whether it has been spent well or foolishly would occupy your Lordships’ House for many a long day—but that is not a point for this evening. However, spent it has been. Across the North Sea, Norway took a different approach. After a strenuous debate, it decided that it would be worth while creating a sovereign wealth fund. Norway has a much smaller population and commensurately much more gas, so I am not pushing the metrics too far, but in 25 short years Norway has created a sovereign wealth fund which last June was valued at $850 billion—about £680 billion. As I say, in this country we took a different approach and made a different decision and every penny that we receive now and in the future will be spent until the oil finally runs out.

Now we have another potential gift from nature, with natural gas extracted by this fracking process. I believe that we should be doing something to follow the Norwegian example, avoid the mistakes we have made in the past and put aside some portion of this for the future. I accept that one problem at this stage is that we do not know what funds will flow—or whether, indeed, any funds will flow—from shale gas. Equally, I am sure that if we fail to establish some structure before the funds start to flow, the chances of our doing so afterwards are vanishingly small.

As a result of this, in November 2014 I tabled amendments in Committee on the Infrastructure Bill suggesting that it would be advantageous to follow this approach. I expected that my amendments would be roundly rejected and I was not disappointed; they were. But a couple of days later I had a call from the Chancellor of the Exchequer’s office to say that he actually thought it was quite a good idea and that if I chose to retable my amendments on Report he would be prepared to give a commitment to undertake some form of shale wealth fund. As your Lordships may imagine, I did not need to be asked twice to do that, so I retabled them and on 10 November 2014 the noble Lord, Lord Deighton, speaking for the Treasury, said that,

“we commit to the principle. The Chancellor will demonstrate his commitment to bring forward a proposal in the next Parliament in his Autumn Statement”.—[Official Report, 10/11/14; col. 102.]

I am glad to say that the Chancellor did fulfil that commitment.

I should have known that pride cometh before a fall because, since October 2015, progress has been—well, “glacial” is probably the right word, bearing in mind what we are discussing this evening. A consultation document was published in August of last year and any strategic vision had been carefully excised. Now one reads that the fund is to have a maximum life of 25 years and a maximum size of £1 billion—this is hardly a sovereign wealth fund, Norway-style. Indeed, as I pointed out in my response to the consultation, the emphasis on local distribution of any money received leads one to fear that it is no more than a bribe to draw the sting of local opposition to fracking.

My reactions are that this proposal should not be limited to a 25-year life; that some proportion of the fund should be invested on an endowment basis—that is, disbursement should be limited to a level at which you preserve the capital for future generations; and that the fund should not be used exclusively to benefit what might be quite small communities which happen to be sitting on top of a gas access point. By my calculations, with a suitable split between immediate spending and endowment, by the end of the 25 years the fund would—assuming that you had reached the £1 billion figure—be distributing £8 million a year to local and regional projects, and would have an endowment fund valued at £600 million capable of throwing off about £20 million per annum, inflation-proofed in perpetuity. This would be an extremely modest project by comparison with Norway’s but it might provide a working example for a more visionary follow-on.

Sadly, vision still seems to be in short supply, and since that consultation closed at the end of October there has been silence. In reply to a Parliamentary Question that I put down in February, my noble friend Lady Neville-Rolfe said:

“A government response to the consultation will be published shortly”.


This sounds to me as if the long grass is beckoning.

In summary, I feel that the dead hand of Her Majesty’s Treasury, with its dislike of anything financial outside its control and terror of anything approaching hypothecation—although this is a very unusual form of hypothecation—is gradually squeezing the life out of this idea. Perhaps when he comes to wind up, my noble friend the Minister could confirm or deny my worst fears.