Gavin McCrone: A lesson in quiet dignity

The sentencing of Anders Breivik for the terrible massacre that took place a year ago has drawn the world’s attention once again to Norway. As it happened, I was in Trondheim at the time of the anniversary in July and watched the commemoration proceedings from Oslo and Utoya island on television. Such a horrendous event, of course, is a cause of immense grief, and even the king and queen were in tears. But what struck me was the simplicity and immense dignity with which the commemoration was conducted.

Many Scots feel some affinity with Norway, especially in our Northern Isles. There are geographical similarities too: our sea lochs and mountains in the Highlands are a smaller version of Norway’s topography. If one wants to know how to look after remote communities, the fishing industry or North Sea oil, the Norwegian experience is well worth studying.

So how does Norway compare with Scotland? Norway has a total area of 125,000sq miles, much of it above the Arctic Circle, compared with Scotland’s 30,000. Its population of 4.7 million compares with Scotland’s 5.25 million. On the basis of GDP per capita it is one of the wealthiest countries in the world, coming fourth after Qatar, Luxembourg and Singapore, well ahead of the United States, the other Scandinavian countries and the UK. Its unemployment rate is only 3.2 per cent, despite the world recession. It is the seventh largest oil and gas producer in the world, compared with the United Kingdom, which is 14th, and a major exporter of hydrocarbons, whereas the UK is now a net importer of both oil and gas.

Undoubtedly, successive Norwegian governments have handled their economy very well. It has not always been a rich country, with quite high emigration in the interwar years. It only became independent in 1906 when it separated from Sweden and, before that, for more than 400 years was in union with Denmark. During the 19th century, however, despite being linked with Sweden, it had a large measure of home rule. The nobility was abolished and the basis laid of a very egalitarian society, which continues to this day with excellent health and education services and generous provision of welfare benefits.

The first North Sea oil was discovered in 1969 with the Ekofisk field. In the 1970s, Norwegian policy for handling the oil developments was well ahead of British [as I discovered when visiting Norway at that time]. They set up Statoil, a publicly owned company, to take a major stake in the oilfields alongside the big international oil companies. They had put in place a tax regime which ensured that the country got a major part of the profit from the North Sea in tax revenues.

The UK government of the time was slow to put adequate measures in place, but, following the election of 1974, this was rectified with many of the measures closely copying those adopted in Norway, including the setting up of the British National Oil Corporation (BNOC) to take an equity stake in the oilfields. Many of these measures have remained in place, although BNOC was privatised as Britoil in 1982 and then bought by BP in 1988.

Unlike the UK, Norway did not try to exploit the North Sea resource with the maximum possible speed, their economic circumstances being different from the hard-pressed UK in the 1970s. But the biggest difference has been in the way that the oil revenues have been handled. It was only in the 1980s that the revenues became of major significance and they were simply taken as another form of tax revenue for the budget. Coupled with the very tight monetary policy then adopted to kill the high inflation of the 1970s, they caused the sterling exchange rate to rise dramatically and were a major factor in the serious recession and deindustrialisation of the early 1980s.

Unlike the UK, governments of Norway have been sensitive to the danger that the income from oil, by strengthening the balance of payments, could push up the exchange rate and thereby put the non-oil economy in danger, and have done their best to offset it. Inevitably, however, the currency has become very strong, which has caused some difficulty for the non-oil economy.

But most significantly, the tax revenues from oil, together with much of the income accruing to the nationally owned companies, have been paid into a special fund, where it was invested. The Government Pension Fund (SPU) was established in 1990 and receives the state’s total cash flow from petroleum activities. The SPU is required to invest this money abroad, rather than in Norway, to counteract the effect it would otherwise have on the balance of payments and exchange rate. The total value of the fund is now some £330 billion, making it the biggest wealth fund in Europe, dwarfing the country’s gross national debt and worth 70 per cent more than the total yearly output of the economy.

The other side of the coin is that Norway’s cost of living is very high. Within the country, this is offset by high incomes. But taxes are also high. VAT is 25 per cent with a reduced rate of 14 per cent on food. Income tax is at a flat rate of 28 per cent after deduction of allowances up to an income of just over £40,000. It then rises to 37 per cent on gross earned income, and above £65,000 to 40 per cent. In addition, taxpayers pay 7.8 per cent of salary on social security contributions, which, unlike National Insurance in Britain, has no ceiling. Income from capital is ostensibly taxed at a low proportional rate, but is subject to a rate of return allowance, and when this is taken into account for those also paying the wealth tax of 1.1 per cent on assets above £69,000, the effective tax rate on real returns can be over 100 per cent, according to the OECD.

This has been criticised by OECD and by trades unions in Norway on the grounds that it hinders productive investment. But it encourages investment in owner-occupied housing, on which there is mortgage interest relief and no taxation; it is no surprise, therefore, that Norway has an excessively high level of mortgage and other personal debt, mostly at variable rates.

Much emphasis is placed on regional policy: lower rates of social security contributions apply in the northern parts of the country, together with reduced rates of tax and subsidies to agriculture and to transport.

All of this accords with the high priority that is given to maintaining communities in remote areas and explains their success in doing so.

What lessons can be learned from this? The most obvious one is that the UK has wasted a major opportunity in not paying its oil revenues into a special fund. Not to do so was understandable in the dire economic circumstances of the 1970s and it would be very difficult to do it now in present circumstances. But it could have been done in the 1980s and 1990s and, had it been, our present economic position would be very different.

Some SNP ministers have said that, even at this late date, if Scotland chooses independence, it would be their aim to set up such a fund. That is laudable, but it would be very difficult, given the size of the non-oil deficit Scotland would be likely to have.

As for the other measures, many people, especially those with high incomes and savings, would suffer a shock if anything like Norwegian rates of tax were applied here.