Battle Over GBP6bn Oil Bonanza SNP Demands a Share of North Sea Tax Windfall
By GRAEME SMITH and MICHAEL SETTLE
THE political battle over oil and gas revenue has reignited after the industry revealed that on the back of high prices it is set to pour GBP6bn more than expected in tax into Treasury coffers – doubling last year’s overall tax-take.
The news sparked renewed calls from First Minister Alex Salmond for Scotland to get a significant share of the North Sea windfall, a subject that today is likely to dominate political argument in the increasingly heated by-election battle of Glasgow East.
As the UK reeled yesterday from a tide of bad news from the housing sector and business leaders warned the country was at “serious risk” of recession, the growing pessimism spread to the stock market. The FTSE 100 Index dropped 72 points to 5440, pushing it into “bear market” territory and with shares at one point trading more than 20per cent below last June’s peak.
At the G8 Summit in Japan, Prime Minister Gordon Brown acknowledged Britain was going through “very difficult times” but again insisted he was the man to lead it through the economic downturn while at Westminster Baroness Vadera, the Business Minister, denied the country was “verging on recession” and pointed to forecasters’ predictions of UK growth this year.
The GBP6bn tax figure was revealed in an economic report produced by Oil & Gas UK, the industry body, which showed that this year the industry will pay around GBP21bn in taxation on both production and the wider economic activities of the UK supply chain.
The report details how, if 25 billion barrels of oil and gas can be recovered from UK waters instead of the 10 billion for which there are currently plans, it would be worth Dollar1.5trillion to the British economy – “a prize which the country cannot contemplate losing”.
Around 25per cent of these additional barrels lie to the west of Shetland and efforts are being made o identify ways of creating the infrastructure which would allow these reservoirs to be exploited.
Launching the report, Mike Tholen, Oil & Gas UK’s economics director, said: “Last year, the government saw GBP7.8bn come to the Exchequer directly from oil and gas taxation in the North Sea. In the Budget this year, the government predicted an oil price of Dollar85 a barrel and it saw tax receipts coming back of something like GBP10bn.
“What is shown in the report is that as prices have gone up tax has gone up and we actually expect something like GBP15bn to GBP16bn to return to government this year directly because of North Sea oil and gas taxes.” A GBP16bn tax-take would be double that of 2007.
When it was estimated earlier in the year that the UK Government’s additional tax-take would be GBP4.4bn, Mr Salmond called for 10per cent of it to establish an oil fund, similar to Norway’s, putting money aside for when the oil runs out.
Last night, his spokesman said: “The UK Government had previously denied there would be on offshore oil tax windfall, in response to growing demands for a fair deal for Scotland, but Oil & Gas UK has confirmed the Chancellor will benefit to the tune of billions of pounds this year alone.
“The First Minister has written to the Chancellor pressing the case for an action plan to bring relief from high fuel prices.
“Among the measures the Chancellor must bring forward are cancelling the 2p duty rise planned for October, establishing a fuel price regulator to reduce duty as oil prices rise, and giving Scotland a share of the North Sea tax windfall to deliver direct and longterm benefits from our oil resources.”
However, last night a Treasury spokesman told The Herald that there would be no major overall windfall for the UK Government.
“Obviously, there will be some additional revenue as a result of higher fuel prices and extra revenue from North Sea oil but there will be no windfall because it will be offset by lower income from other areas, ” he said.
He explained that as fuel costs rise, people spend less, so there is not as much money going to the Exchequer; plus, there are knock- on effects on other parts of the economy such as lower returns on stamp duty as fewer people buy houses.
Focusing on the necessity to bridge the gap between the 10 billion barrels of oil and gas which will be recovered and the 25 billion which could be recovered, Malcolm Webb, Oil & Gas UK’s chief executive, said: “Barrels left in the ground do not pay taxes, do not sustain jobs, do not help secure the nation’s energy supply and provide no support to the country’s balance of payments.
“We look forward to continuing discussions with the Treasury on ways to increase the competitiveness of the UK oil and gas basin and on how targeted incentives might boost investment in the UK’s oil and gas reserves so that the nation can continue to reap the numerous benefits that flow from having a strong indigenous oil and gas industry for many decades to come.
“We are looking to the government to give further encouragement and incentives to companies willing to invest the very considerable sums that will be needed to get to that 25 billion target but that is a target worth going for.
“At Dollar100 per barrel it is worth Dollar1.5trillion to the British economy and this is a prize which the country should not contemplate losing.
“We are suggesting that they need to have further targeted incentives in the form of uplifted capital allowances. We are not talking about cutting the headline rates of tax and we understand the fallacy of even suggesting that at the moment.”
Originally published by Newsquest Media Group.
(c) 2008 Herald, The; Glasgow (UK). Provided by ProQuest Information and Learning. All rights Reserved.