Local residents to receive cash handouts from shale drilling

In a move to ensure that the extraction of shale gas economically benefits local communities, prime minister Theresa May has drawn up a new option for the dispersal of the Shale Wealth Fund - directly to local residents.

Initial plans for the fund were announced in last year’s autumn statement, with financial secretary to the treasury Jane Ellison revealing plans on 8 August, starting the public consultation process.

The prime minister’s new proposal came one day before the public consultation launch, changing much of the consultation focus towards ensuring local areas retain more control, and local residents see direct benefit from shale extractions.

Theresa May will see this announcement as aligning with her approach to government as an administration "driven by the interests of the many". Commenting on the proposals, May said: "This announcement is an example of putting those principles into action. It’s about making sure people personally benefit from economic decision that are taken – not just councils – and putting them back in control over their lives".

The government hopes that transferring such funds directly to households will boost the local economy through increased disposable wealth, easing household finances, while fostering an understanding of why such exploration and extraction is being done.

Labour however called the proposed payments a bribe. Barry Gardiner, the shadow energy and climate change secretary, criticised the handouts when there was no such payment for people to accept clean-energy wind farms.“Does Theresa May really hold the British public in such high esteem that she thinks they can be bribed into fracking and a fossil fuel future?” he said. “Appealing to people’s higher nature, Theresa May gives a £10,000-plus bribe if you live near a frack site. If you live near a wind farm, nothing … The asymmetry is amazing. Wind farms are subject to a localism veto but for shale gas, [the] government can override.”

May's option within a wealth fund is similar in principle to other countries, such as Norway, that hold valuable natural resources with the belief that the benefits of such natural resources are not owned by a select group but rather the people as a whole.

The Norwegian wealth fund, based on oil reserves, is predicated on the belief that the demand of this natural resources will serve to secure the future of Norwegian society, while also accounting for its limited presence. Estimated to reach $1tr by 2020, this fund is structured to avoid ‘Dutch Disease’, an economic condition when the increase in wealth from natural resources will lead to a decline in other sectors fundamental to a healthy and long term sustainable local economy.

While the UK fund in question is not likely to rival the Norwegian fund in monetary amount, incorporation of the prime minister’s option of dispersing funds from shale gas extraction to local residents must ensure that this does not falsely halt local economic drivers such as agriculture or manufacturing.

Jane Ellison’s proposed plans concerning the pay-out stages to communities may set a practical model to address ‘Dutch Disease’. With communities likely to see pay outs over the next 25 years, also staggering the dispersal to individuals will ensure this is a supplement to, not a replacement of, personal income. Thus ensuring local economic activities such as agriculture and manufacturing continue to add strength to the local and UK economy.

The shale drilling pay-outs could be just the start of the prime minister’s attempts to foster an economic reality that benefits all. The model of dispersing funds directly to residents could be applicable to other community benefit schemes, such as the Community Infrastructure Levy, which is currently under review.

“We’ll be looking at applying this approach to other government programmes in the future too, as we press on with the work of building a country that works for everyone,” said May.

The public consultation on the fund will close on 26 October 2016 and will serve as a test for the level of public support for the initiative.

Click here for details of how to participate in the Shale Wealth Fund open consultation.