Back in the 70s, the UK and Norway took two very different approaches to the roughly equal share of North Sea oil and gas that they had within their territorial waters. With state-owned oil company Statoil at the helm, Norway cautiously put aside profits and levies from other oil companies operating within its fields into an oil fund. Decades later, the income from that fund alone covers 10% of Norway’s national spending, which includes of course one of the most developed national welfare infrastructure of all of Europe.

In contrast, the UK held what has since been regarded as a fire sale of the oil and gas to private companies to quickly raise revenues. According to Money Week magazine:

The money that flowed into the Treasury’s coffers was crucial to enabling the Government to bear the cost of rising unemployment. Some economists believe that, without North Sea oil, the Thatcher Government might have been forced to abandon the strict monetarist economic policies that caused interest rates to rise to punitive levels in the early 1980s, and to scale back Thatcher’s confrontation with the unions and privatisation programme, both of which contributed to soaring unemployment.

Two very different approaches fuelled the development of two very different political systems  – Thatcherism in the UK (and the subsequent neo-liberalism of New Labour), and state-centred social democracy in Norway. While Norway is now using its amassed revenues to support the needs of an aging population and funding climate mitigation projects around the world, the UK has to little to show for its North Sea bonanza.

Decades later, and North Sea oil production is once again galloping to the rescue of controversial economic policies. This morning saw newspaper report and Radio 4’s Today programme showcasing a new report from Oil and Gas UK, an industry lobby group, crowing that investment in North Sea oil is at its highest in 30 years, and will provide billions in tax receipts for the Exchequer in profits from the projects that have been approved in the last two years.

The timing couldn’t have been better for Osborne, who in the last week has come under even more criticism for UK’s credit rating being downgraded from AAA status, and for the sale of the 4G network falling short by more than a billion pounds that had already been accounted for in a previous budget. The Oil and Gas announcement provides some much needed credibility for the Chancellor, showing that at least one of his policies – providing massive tax breaks for North Sea oil – seems to be paying off.

There’s all sorts of reasons to be skeptical of this. For starters, let’s not forget that this is an analysis that’s coming from an industry body with heavy interests in both making the sector look good, and more importantly, making Osborne’s choice to get heavily behind the sector look good. According to the group, the two sides have established a “new long-term approach to the oil and gas industry”.

Secondly, this new ‘bonanza’ has only been made possible by active and distortionary interference in the economics of new fields by the Treasury. Research from Friends of the Earth in January 2013 shows that, “assuming that all of the tax breaks were taken up in full, the tax breaks given out by George Osborne since Budget 2012 amount are so far worth £864 million to the oil and gas industry.” This figure has by now almost certainly passed the £1 billion mark although the figures have yet been updated.

Another subsidy that the industry is receiving is the externalisation their costs. By definition, these costs are in fact incurred by society at large. In the context of North Sea oil, the immediate externality in question is that of leaks and spills. In October last year, the Guardian reported that Oil companies operating in the North Sea have been fined for oil spills on just seven occasions since 2000, even though 4,123 separate spills were recorded over the same period, with no single company ever having to pay more than £20,000.

As with all government decisions to incentivise and smooth the way for more fossil fuel extraction, the actively ignored externality-elephant in the room is the cost of dealing with climate change. Some scientists are now suggesting that the annual cost could easily reach $300bn or more by 2030. Long after both the North Sea oil profits and tax revenues have been frittered away, the public will be saddled with climate costs that will dwarf our current public spending dilemmas.

In this light, Osborne’s decision to align himself with industry interests in oil and gas fields that are widely acknowledged to be being near depletion is at horrendously short-termist. There have been countless studies showing that with the right investment and crucially, the political will behind it, the urgent development of renewables infrastructure in the UK could result in thousands of green jobs, massive economic stimulus, a huge boost to tax revenues and a means of weaning the country away from its dependence on fossil fuels. Osborne is positioning himself even to the right of the fairly right-wing business-lobby group the CBI, whose research shows  that Britain could be adding £20 billion extra in annual GDP by 2015 if the government were to “to take the right action” on low carbon products and services.

Osborne’s efforts, alongside Oil & Gas UK, in boosting North Sea oil is a means of papering over both economic and climate crises. While Thatcher managed to buy herself a decade of grace for her controversial economic restructuring using oil and gas revenues, Osborne’s dependence on North Sea coffers is unlikely to solve any fiscal woes, but it does mean we are continuing to drill our way into climate disaster.

For more of our research into tax breaks, North Sea oil and public subsidies, see our recent briefing Making a Killing:  Oil Companies, Tax Avoidance and Subsidies.