Margaret Thatcher’s influential energy legacy
Margaret Thatcher, UK prime minister from 1979-90, who died in on 8 April, brought profound changes to the country’s business life and particularly to the energy sector
Margaret Thatcher’s government came to power with an agenda to roll-back the influence of the state, and the energy industries were its first targets. When she took office, the gas, electricity and coal industries were entirely state-owned and there was a large state oil company. When she left, all of the energy industries except coal were entirely in private hands, with coal following in 1994.
While most agree that her government’s transfer of state energy assets to private companies has brought long-term benefits, some say the regulation of privately-owned energy industries was inadequately managed, and still is. Although privatisation brought greater efficiencies – and lower bills for consumers for many years – gas and electricity supply are now in the hands of just a few large companies, with a lack of real competition.
The UK’s North Sea oil was central to the Thatcher government’s plans because – after the industrial decline and rise of the labour unions in the 1970s – oil was the one buoyant part of the economy. Oil production began in 1975 and had built up to 1.6 million barrels a day (b/d) in 1979, rising to over 2.6m b/d in the mid-1980s. But the huge in-flow of oil revenues boosted the value of the UK currency, making non-oil exports too expensive and stoking the industrial decline.
The government made full use of North Sea production to balance its books, raising tax rates in successive budgets until investment was choked-off and production declined. But the much-criticised British National Oil Corporation, which had the rights to 51% of the country’s production and could benefit from information gained as a licence participant, was privatised as Britoil (and later acquired by BP).
The Thatcher reforms to business life generally – supporters argue that today’s enterprise culture can be traced back to her government – facilitated the growth of smaller UK oil companies in the 1990s and onwards. Upstream taxes have become less onerous and licence terms more attractive, while exploration and development prospects have become smaller. A large number of oil service companies have also been attracted to the UK, leading to a sector-wide employment of 440,000 people according to Oil & Gas UK.
But critics say the Thatcher government’s belief in privatisation and free markets led to a lack of long-term planning in energy. Gas production, in particular, was allowed to run at high rates, much of it being used for low-value electricity generation. In consequence, gas production now has declined to less than 40% of its peak and remaining reserves are sufficient for only 12 years of present output. In contrast, the Netherlands has held much of its gas in reserve, while Norway has used oil and gas revenues to build-up vast sovereign investments overseas.
Undoubtedly, the coal industry was the biggest loser of the Thatcher years. Some say the government picked on the miners’ union for its first battle in a war against unions generally, while others say the miners’ union started the fight in an attempt to save others. The outcome, after a pit closure programme had been announced, was a year-long strike and great social conflict – followed by the closure of much of the UK coal industry. Coal production, 105.3m tonnes a year (t/y) in 1983-84, now runs at 16.7m t/y , with almost 45m t/y imported.
“Thatcherism” did not end at the UK’s shores. Worldwide, and led by the energy sector, there were large-scale transfers of assets from state companies to the private sector in the 1980s and 1990s. The results were not always beneficial: in Russia, for example, inefficient but benign companies have morphed into aggressive international arms of the government, while making some individuals absurdly wealthy. As a frugal woman from the country’s midlands, Margaret Thatcher did not approval of absurd wealth.