UK oil and gas chief scotches N. Sea ‘subsidy’ myths

oil rigBy DARA BUTTERFIELD

The head of the N. Sea oil and gas industry association has scotched ‘media myths’ in some daily-printed media that the sector benefits from British government tax subsidies.

Offshore British oil and gas does not receive any government subsidies – and is subject to highest corporate taxes in UK

The production of offshore oil and gas is subject to the highest corporate taxes in the UK, ranging from 62 to 81%.

Tailored tax allowances, introduced by this and the previous  British governments, have helped to boost flagging investment in the UK’s oil and gas fields which, at the current headline rates of tax, would not have been developed.

Oil and gas left in the ground pay no taxes, support no jobs, undermine energy security and worsen the balance of payments.

Malcolm Webb, Chief Executive, of the London-based Oil & Gas UK trade association, commented: “It is disingenuous and misleading to suggest that the offshore oil and gas industry has been a recipient of subsidies.

“Unlike other sectors of the energy industry, offshore oil and gas does not receive any government subsidies, and it is taxed on profits at up to 81p in the pound.

“In fact, it pays more tax to the UK chancellor than any other corporate sector, and has paid over £330 billion to the country in production taxes paid to date. The Exchequer has further benefitted from the Income Tax and National Insurance Contributions paid by the 450,000 people in the UK whose jobs are supported by the industry.

“To describe tax allowances on capital investment as subsidies is to imply capital expenditure should be taxed. It is extremely worrying that this notion is being shared by media, especially at a time when this country is in such serious need of capital investment and the economic growth which it brings. 

“In the past three years, the economic activity of this industry has amounted to between 2.5 and 3% of GDP, whereas the taxes paid on the profits from production have amounted to between 15 and 25% of all corporation taxes received by the Exchequer.

“With up to 24 billion barrels still to be recovered, there should be a strong future for the North Sea. The UK fiscal regime needs to recognise the requirements of a mature and relatively high cost hydrocarbon province, including appropriate allowances for capital expenditure in marginal investments.

“This is not a request for subsidy – relieving costs – but economic good sense.”

The £330 billion paid is in the form of corporate taxes levied on profits, after all costs have been paid by the industry. This industry receives limited allowances from 62 to 81% taxes on profits for marginal investments, with the rate of tax never going below 30% versus 21% for the majority of British businesses.

In addition, the oil and gas provides some 70% of the UK’s total primary energy, 50% of which comes from the North Sea. It is a figure which, according to the Department of Energy, will remain unchanged at least until 2030.

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed