Ministers Must Ensure British Firms Benefit from any Uk Shale Gas Boom
Government must ensure British firms benefit from any UK shale gas boom
- Specialist Whitehall unit needed to resolve equity problems and get supply chain in place
- Government should heed lessons of missed opportunities in offshore wind
- Safeguards needed against predatory foreign acquisitions in key industries
Ministers must urgently ensure British companies are well-placed to exploit the enormous economic advantages that will arise if shale gas extraction takes off in the UK.
A report published today by the independent think tank Civitas urges Whitehall not to repeat its mistakes in failing to fully exploit the business potential arising from the UK’s offshore wind industry.
A former civil servant who played a central role in harnessing the benefits of North Sea oil for domestic firms says Britain has missed out on thousands of jobs in offshore wind.
Norman Smith blames the government’s failure to take early and concerted action to coordinate the establishment of a supply chain in the UK – and calls for a new Whitehall unit that would identify and address such opportunities in future.
Civitas director David Green said policymakers should consider the implications of Smith’s observations for future opportunities, including fracking for shale gas.
“The lessons Norman Smith outlines in this paper must be taken on board in Whitehall before economic opportunities in further growth areas are missed,” he said.
“Fracking is a case in point. If this industry takes off, ministers and civil servants must ensure that the UK is in a position to ensure that jobs are created here rather than abroad.
“It is still early days with fracking and so there is time to get the framework right.”
Drawing on his experience as director general of the Offshore Supplies Office (OSO), the government office that supported British suppliers to the North Sea oil and gas industry, Smith makes a series of recommendations which would help ministers in their avowed aim of rebalancing the economy:
- Establish a team of civil servants, as part of a special government unit or an industry/government body, which can identify and resolve restraints on both demand and supply, and can act as a finance broker to close the equity gap. “The role of government in simply acquiring and disseminating information should never be underestimated and nor should its role as a broker,” he says.
- Address the longstanding equity gap facing British industry, particularly for investments requiring more than £10 million. “The new Business Bank seems unlikely to address the need, since its equity remit is likely to be directed mainly at the market below the £10 million level, reflecting a general over-emphasis on truly small companies in government policy. For technically sophisticated products and services, at least, £10 million does not go very far in the drive to address global markets, something very necessary if the trade deficit is to be reduced and world-class companies developed.”
- Deter the exploitation of publicly-funded research and development by overseas investors through a system of capital payments. Consider blocking overseas acquisitions in a few key industries, such as energy and defence, as not in the national interest. “The absence of such a process makes the UK almost unique among developed countries. Nevertheless, the use of any blocking powers should be carefully considered and only rarely employed, with the long-term aim of maintaining a balance between local and foreign control in strategic sectors.”
- Undertake a forensic analysis of the industrial policies of other EU countries to ensure Whitehall is taking maximum advantage of present restrictions. “There is plenty of evidence that the UK has been over-zealous in its interpretation of how restrictive the rules actually are or at least unaware of the amount of ‘wriggle-room’.”
Smith says that the multi-billion pound a year offshore wind business could have been carved up entirely between British firms.
Instead, the UK was ill-prepared to take advantage and now only 30% of the parts and services for offshore wind developments, which are heavily subsidised by the British taxpayer, come from domestic suppliers.
“There no longer is a purely domestic option, though if action had been initiated a decade or more ago, there could have been,” Smith writes.
Ministers hope to increase the UK content of offshore wind developments to 70% with the numbers employed in the industry rising from 4,000 at present to 30,000 by 2020.
But Smith warns that the “depressing” current situation will be difficult to improve as the government has no sanctions available.
Writing in ‘Industrial Policy: Lessons from the North Sea’, Smith calls for a commercially-minded specialist government unit that can identify opportunities and limitations and take action to address them at an early stage.
It is vital to start developing a supply chain before any period of rapid growth, he says.
“Regrettably, this principle was not observed in respect of the current vast and heavily subsidised offshore wind generation and transmission programme, the world’s largest, despite its having been signalled well in advance.”
Norman Smith worked in engineering manufacture and merchant banking before being seconded to the Department of Energy where he became Director General of the Offshore Supplies Office (OSO), the government agency which supported British suppliers to the North Sea oil and gas industry. He subsequently co-founded and managed an energy consulting company and held a series of directorships with oil and gas industry companies.
He is the author of The Sea of Lost Opportunity: North Sea Oil and Gas, British Industry and the Offshore Supplies Office.
Industrial Policy: Lessons from the North Sea is published by Civitas on Friday 13 December. It can be accessed as a PDF below.