Chancellor launches
£10bn North Sea oil tax grab
Michael Settle and Martin Williams - Herald Scotland - 24th March 2011
George Osborne’s £10 billion, five-year raid on North Sea oil companies to pay for a cut in petrol prices is today thrust into the heart of the Holyrood election campaign.
SNP finance spokesman John Swinney, who also hit out at plans to lower corporation tax in Northern Ireland as bad for Scotland’s economy, accused the Chancellor of using Scotland’s North Sea resources “to fuel his Budget” saying he had given “far too little in return”.
Noting that oil revenues were at an all-time high, he added: “Given petrol prices have gone up by 16p a litre over the past year alone, this windfall could and should be used to bring duty down not by 1p but by 5p UK-wide or, if they were applied in Scotland, petrol prices could come down by 50p.”
The oil industry also gave a stark warning to the Chancellor that his hike in tax on North Sea profits from midnight will drive Scottish jobs and investment to other parts of the world.
However, last night Scottish Secretary Michael Moore claimed the Lib-Con Coalition had “shot the SNP fox” on introducing a fuel duty stabiliser – a policy the Nationalists had championed – adding: “Mr Swinney has a choice: If he wants to help the motorist, he should tell us where he would get the money from.”
This tax hike will change the whole economics of North Sea projects, which are already marginal
As expected, in his Budget, Mr Osborne decided not to go ahead with the planned 5p duty rise from April and scrapped the fuel duty escalator that drove up prices year on year. Instead, there will be a Fair Fuel Stabiliser, which, when fuel prices are high, uses oil company profits to reduce pump prices.
In a surprise move, he also announced a 1p a litre cut. Together, the measures will reduce the cost of petrol by 6p a litre.
To Conservative cheers in the Commons, Mr Osborne declared he had “put fuel into the tank of the British economy”.
However, Ed Miliband, the Labour leader, was scathing, saying: “The Chancellor has cut duty by 1p but he has whacked up VAT on fuel by 3p. Families won’t be fooled. It’s Del Boy economics.”
Motoring groups welcomed the fuel duty cut as common sense, but the oil industry was shocked by the new windfall tax.
Oil & Gas UK, the industry body, warned the move “will inevitably have a serious effect on Scotland”.
Malcolm Webb, Oil & Gas UK’s chief executive, said the new tax hike would raise the overall tax rate to at least 62% and up to 81% for older fields.
He warned: “Many of our members will now be reappraising their investment decisions.”
“Today’s move in the Budget runs counter to the Government’s stated desire to promote growth, jobs and exports – all of which this industry was delivering and will now find much more difficult to sustain. Importantly, it will also most likely increase this country’s dependence on imported oil and gas and thus diminish its energy security.”
A Treasury source was adamant the oil companies would not simply pass on the new tax to their customers at the pump, saying: “Forecourt operators are in a competitive market and know that if they charge more than the one down the road no-one is going to go to them.
“This will not affect the price of fuel.”
With the cost of living at a 20-year high, unemployment rising and with more tax rises due, the Chancellor’s “Budget for growth” had a sombre backdrop.
Mr Osborne had to announce that the Office for Budgetary Responsibility (OBR) had cut its growth forecast for 2011 from 2.1% to 1.7% due to higher inflation and the contraction in the economy.
While the OBR predicted stronger growth in subsequent years, it warned: “We expect this recovery to be weaker than the recoveries of the 1980s and 1990s.”
At the same time, the OBR said it expected borrowing over the next five years to be a total of £47 billion higher than previously predicted.
The gloomy forecasts produced more scorn from Mr Miliband, who told MPs: “Every time he comes to this House growth is downgraded ... It is the same old Tories. It is hurting but it isn’t working.”
Mr Osborne again dismissed Labour calls for him to rein in the Government’s £81bn package of spending cuts, declaring: “Britain has a plan and we’re sticking to it.”
A central theme of the Chancellor’s Budget was boosting business. A 1% cut in corporation tax from April was doubled to 2%, bringing the rate to 26%.
This will be paid for by green taxes, adding £6 a year to people’s power bills.
As trailed, Mr Osborne announced a further income tax cut of £48 a year from 2012 by raising the tax-free allowance by another £630.
This would give a tax cut of £210 over two years for 2.2 million Scots. This will be paid for by a £1bn crackdown on tax avoidance.
By next April, some 92,000 Scots will be taken out of income tax altogether.
However, the move to CPI for the indexation of direct taxes means £21 of the £210 cut will be clawed back.
Nonetheless, Treasury sources insisted that because of the raising of the personal allowance year on year there would always be a net tax cut.
Other measures include:
However, Brendan Barber, the TUC general secretary, said it was a “no-change” Budget, that did “nothing to end the basic error of imposing deep, rapid and unfair spending cuts on an economy where unemployment is rising and growth faltering”.
On Saturday, up to 250,000 people are expected to join a TUC-organised anti-cuts march in London, the biggest protest since the demonstration against the Iraq war in 2003.
On the tax hike affecting North Sea oil companies, Derek Henderson, tax partner who works on North Sea projects at Deloitte in Aberdeen, added: “This will change the economics of North Sea projects, which are already marginal. For some, it may become economically impossible to produce oil from the region.”
Mr Osborne said he did not want investment in the North Sea to be lost entirely, so promised oil producers that if the oil price falls below $75 a barrel, the tax would be reduced. The price is currently $115.
However, Derek Leith, oil and gas partner at Ernst & Young, said: “The prospect that the rate will reduce if the oil price falls before a certain level, and the possibility of some measure of relief for new gas fields, will carry little weight with oil companies in the light of such a significant increase in tax.”
He said the shock tax increase demonstrated to industry “in an unambiguous fashion that there is no real concept of fiscal stability in the UK” and further warned that companies will be “frantically reappraising their plans for capital investment in the UK continental shelf in the coming days”.
Analysts say the tax rise is unlikely to have a major impact on the two largest UK-listed oil companies, BP and Royal Dutch Shell as they have both reduced and are continuing to reduce their North Sea presence, but it will probably affect hardest the many small and mid-sized firms such as nQuest, Maersk and Taqa that have upped their presence in the North Sea and has given the industry new impetus.
CBI Scotland said the North Sea profits tax hike was a “sting in the tail that could prove counterproductive and introduce unwelcome uncertainty into the North Sea fiscal regime, when we should be trying to maximise the exploitation of our indigenous oil and gas reserves”.
Liz Cameron, chief executive of Scottish Chambers of Commerce added: “This could seriously impact the industry’s capacity to invest in new and hard-to-get-at reserves in more challenging areas of the UK continental shelf”.
See also:
North Sea oil
It's Scotland's oil
The end of Britain's economic miracle
£1bn slump in North Sea oil investment
English voters furious at Holyrood budget deal
Michael Settle and Martin Williams - Herald Scotland - 24th March 2011
George Osborne’s £10 billion, five-year raid on North Sea oil companies to pay for a cut in petrol prices is today thrust into the heart of the Holyrood election campaign.
SNP finance spokesman John Swinney, who also hit out at plans to lower corporation tax in Northern Ireland as bad for Scotland’s economy, accused the Chancellor of using Scotland’s North Sea resources “to fuel his Budget” saying he had given “far too little in return”.
Noting that oil revenues were at an all-time high, he added: “Given petrol prices have gone up by 16p a litre over the past year alone, this windfall could and should be used to bring duty down not by 1p but by 5p UK-wide or, if they were applied in Scotland, petrol prices could come down by 50p.”
The oil industry also gave a stark warning to the Chancellor that his hike in tax on North Sea profits from midnight will drive Scottish jobs and investment to other parts of the world.
However, last night Scottish Secretary Michael Moore claimed the Lib-Con Coalition had “shot the SNP fox” on introducing a fuel duty stabiliser – a policy the Nationalists had championed – adding: “Mr Swinney has a choice: If he wants to help the motorist, he should tell us where he would get the money from.”
This tax hike will change the whole economics of North Sea projects, which are already marginal
As expected, in his Budget, Mr Osborne decided not to go ahead with the planned 5p duty rise from April and scrapped the fuel duty escalator that drove up prices year on year. Instead, there will be a Fair Fuel Stabiliser, which, when fuel prices are high, uses oil company profits to reduce pump prices.
In a surprise move, he also announced a 1p a litre cut. Together, the measures will reduce the cost of petrol by 6p a litre.
To Conservative cheers in the Commons, Mr Osborne declared he had “put fuel into the tank of the British economy”.
However, Ed Miliband, the Labour leader, was scathing, saying: “The Chancellor has cut duty by 1p but he has whacked up VAT on fuel by 3p. Families won’t be fooled. It’s Del Boy economics.”
Motoring groups welcomed the fuel duty cut as common sense, but the oil industry was shocked by the new windfall tax.
Oil & Gas UK, the industry body, warned the move “will inevitably have a serious effect on Scotland”.
Malcolm Webb, Oil & Gas UK’s chief executive, said the new tax hike would raise the overall tax rate to at least 62% and up to 81% for older fields.
He warned: “Many of our members will now be reappraising their investment decisions.”
“Today’s move in the Budget runs counter to the Government’s stated desire to promote growth, jobs and exports – all of which this industry was delivering and will now find much more difficult to sustain. Importantly, it will also most likely increase this country’s dependence on imported oil and gas and thus diminish its energy security.”
A Treasury source was adamant the oil companies would not simply pass on the new tax to their customers at the pump, saying: “Forecourt operators are in a competitive market and know that if they charge more than the one down the road no-one is going to go to them.
“This will not affect the price of fuel.”
With the cost of living at a 20-year high, unemployment rising and with more tax rises due, the Chancellor’s “Budget for growth” had a sombre backdrop.
Mr Osborne had to announce that the Office for Budgetary Responsibility (OBR) had cut its growth forecast for 2011 from 2.1% to 1.7% due to higher inflation and the contraction in the economy.
While the OBR predicted stronger growth in subsequent years, it warned: “We expect this recovery to be weaker than the recoveries of the 1980s and 1990s.”
At the same time, the OBR said it expected borrowing over the next five years to be a total of £47 billion higher than previously predicted.
The gloomy forecasts produced more scorn from Mr Miliband, who told MPs: “Every time he comes to this House growth is downgraded ... It is the same old Tories. It is hurting but it isn’t working.”
Mr Osborne again dismissed Labour calls for him to rein in the Government’s £81bn package of spending cuts, declaring: “Britain has a plan and we’re sticking to it.”
A central theme of the Chancellor’s Budget was boosting business. A 1% cut in corporation tax from April was doubled to 2%, bringing the rate to 26%.
This will be paid for by green taxes, adding £6 a year to people’s power bills.
As trailed, Mr Osborne announced a further income tax cut of £48 a year from 2012 by raising the tax-free allowance by another £630.
This would give a tax cut of £210 over two years for 2.2 million Scots. This will be paid for by a £1bn crackdown on tax avoidance.
By next April, some 92,000 Scots will be taken out of income tax altogether.
However, the move to CPI for the indexation of direct taxes means £21 of the £210 cut will be clawed back.
Nonetheless, Treasury sources insisted that because of the raising of the personal allowance year on year there would always be a net tax cut.
Other measures include:
• 21 enterprise zones to be created in England will mean a £110 million boost to the Scottish Government funds in Barnett Formula consequentials;
• The £250m fund to help 10,000 first-time buyers south of the Border, paid for from the bank levy, will have a £30m consequential for Scotland;
• 9500 young Scots could benefit from the creation of new work experience places:
• 3900 unemployed people in Scotland could benefit from the New Enterprise Allowance to enable new business start-ups.
Last night, John Cridland, director-general of the Confederation of British Industry, welcomed the Budget package, saying: “This will help businesses grow and create jobs.
However, Brendan Barber, the TUC general secretary, said it was a “no-change” Budget, that did “nothing to end the basic error of imposing deep, rapid and unfair spending cuts on an economy where unemployment is rising and growth faltering”.
On Saturday, up to 250,000 people are expected to join a TUC-organised anti-cuts march in London, the biggest protest since the demonstration against the Iraq war in 2003.
On the tax hike affecting North Sea oil companies, Derek Henderson, tax partner who works on North Sea projects at Deloitte in Aberdeen, added: “This will change the economics of North Sea projects, which are already marginal. For some, it may become economically impossible to produce oil from the region.”
Mr Osborne said he did not want investment in the North Sea to be lost entirely, so promised oil producers that if the oil price falls below $75 a barrel, the tax would be reduced. The price is currently $115.
However, Derek Leith, oil and gas partner at Ernst & Young, said: “The prospect that the rate will reduce if the oil price falls before a certain level, and the possibility of some measure of relief for new gas fields, will carry little weight with oil companies in the light of such a significant increase in tax.”
He said the shock tax increase demonstrated to industry “in an unambiguous fashion that there is no real concept of fiscal stability in the UK” and further warned that companies will be “frantically reappraising their plans for capital investment in the UK continental shelf in the coming days”.
Analysts say the tax rise is unlikely to have a major impact on the two largest UK-listed oil companies, BP and Royal Dutch Shell as they have both reduced and are continuing to reduce their North Sea presence, but it will probably affect hardest the many small and mid-sized firms such as nQuest, Maersk and Taqa that have upped their presence in the North Sea and has given the industry new impetus.
CBI Scotland said the North Sea profits tax hike was a “sting in the tail that could prove counterproductive and introduce unwelcome uncertainty into the North Sea fiscal regime, when we should be trying to maximise the exploitation of our indigenous oil and gas reserves”.
Liz Cameron, chief executive of Scottish Chambers of Commerce added: “This could seriously impact the industry’s capacity to invest in new and hard-to-get-at reserves in more challenging areas of the UK continental shelf”.
| ‘The person responsible is not in
No 11 Downing Street … but in
Kirkcaldy’ Andrew McKie - Herald Scotland - 24th March 2011 George Osborne coughed a lot, but it wasn’t an apologetic cough. And he didn’t choke, as Ed Miliband did during his frankly pathetic response to the Budget. It consisted of repeating “same old Tories” and likening the Chancellor to his catastrophic predecessor, Lord Lamont, who sang Je ne regrette rien in the bath after he had given the pound the biggest bath of all time trying to keep it in the ERM. This Chancellor has nothing comparable to apologise for. That might seem extraordinary, given that our total debt is the highest since national debt was invented in 1694; approaching 60% of GDP. But the person responsible is not in No 11 Downing Street nor, as he ought to be, on his knees wearing sackcloth and ashes, but in Kirkcaldy. I fear getting Gordon Brown’s credit card bill down to £29 billion by the end of this parliament is a tall order, although the Office for Budget Responsibility thinks it can still be done if Mr Osborne sticks to his guns. There really is no Plan B. The markets recognised that, even against the bad news on growth. The sharp dips in the debt markets and in the pound against the dollar when the Chancellor announced the reduced figures for 2012 had climbed back up again by the time he sat down, acknowledging that the major brake on growth – the UK’s inflation rate, higher than Zimbabwe’s – is outwith the Chancellor’s control. Doubly so, since it is largely caused by unprecedented worldwide rises in oil and food prices. The populist view that the banking crisis – from which the UK emerged in profit – justifies attacks on the City is dangerous Growth may be worse than expected, but is at least present and growing. Mr Miliband’s harping on about downgrading expectations from 2.1% to 1.7% is a bit rich given the figure during Labour’s last year of government (-5%). Such financial acuity gave us the highest proportion of debt to GDP of any European country, allowed us to overtake India as the world’s most bureaucratic, complicated and inefficient tax regime and saddled businesses with a regulatory burden of £90bn. If Mr Osborne’s Budget did not have the virtue of an overarching simplicity – let’s say, for example, taking everyone under the average wage out of tax, applying a low flat rate to companies and individuals and replacing VAT with a local sales tax – it made moves in the right direction. Abolition of 43 complex tax reliefs; reforming the madness of tax credits; planning to merge NI and income tax; investigating whether the 50% tax rate actually brings any money into the Treasury; above all, raising personal allowances, reducing corporation tax and freezing business rates: these are all welcome. So, too, is the simplification of the Gift Aid system, a genuine boon to charities, churches and voluntary groups. There are difficulties. Clamping down on tax avoidance is not as good as removing the incentive by lowering taxes. And, while it is small businesses rather than banks that will drive real recovery, the moronic populist view that the banking crisis – from which UK plc actually emerged in profit – justifies any attack on the City is a dangerous game. Small business needs not just Treasury help, but the banks’. Whether the latter think their agreement under “Project Merlin” to extend 15% more credit to small businesses will hold good now that the Chancellor has announced a new bank levy rate is an interesting question. Then there’s the fuel duty reduction and stabiliser: Mr Osborne’s most necessary, popular and, probably, effective move. The SNP’s objection seems to be that the Coalition Government has taken its policy, but applied it to the UK as a whole. It’s like complaining that someone else has caught your cough. We’re all suffering. |
See also:
North Sea oil
It's Scotland's oil
The end of Britain's economic miracle
£1bn slump in North Sea oil investment
English voters furious at Holyrood budget deal
|
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