The other offshore tax regime

Guest blog by Greg Muttitt

The lobby machine kicked into action following the announcement by George Osbourne of plans to raise £10 billion over the next 5 years from the oil industry. Ex-PLATFORMer Greg Muttitt, author of the forthcoming book Fuel on the Fire: Oil and Politics in Occupied Iraq explains in this guest blog why the outraged claims of the oil industry in response to this move should not be taken at face value.

Friends of the Earth Scotland, Platform, NEF and others are right to lament the sad sign of the times that the increase in North Sea oil taxation appears to be the most negotiable element of George Osborne’s Budget.

But before government ministers worry too much about the bruising they get from oil companies, or about newspapers’ dire warnings of lost jobs, a few facts are in order.

First, and most obviously, it’s not really a tax increase at all – it’s a ‘fuel price stabiliser‘. This means that overall oil taxation neither increases nor decreases. When oil price is high, upstream tax (on offshore extraction) goes up and downstream tax (on petrol, diesel etc) comes correspondingly down, and vice versa. The changes upstream and downstream balance each other out. The greenest government ever? To keep overall (upstream + downstream) oil taxes at the same level, rather than increasing them, hardly fits this claim. At best it’s a missed opportunity.

And even looking just at the North Sea on its own, it’s not a tax rise over the medium/long term, only while the oil price is high. But when the oil price comes down again, don’t expect oil companies to give anyone a bruising over their tax cut.

Second, contrary to some of the oil companies’ claims of “shock”, this ‘stabiliser’ was not a sudden, new policy. Osborne first suggested it in 2008, and officially announced he was considering it in last year’s emergency budget.

Third, UK oil taxation has been historically among the lowest in the world. Although it did increase in 2002 and 2005, the oil price then (and hence post-tax profits) were a lot lower than they are now. In 1997/8, when Gordon Brown considered a tax on North Sea production, the oil industry ran a massive (and successful) lobbying campaign against it, arguing that since the oil price was low, they couldn’t afford it. Now the oil price is high, the opposite argument should apply. Naturally, the companies would rather we all forgot what they said then.

In a 2009 oil industry survey, the UK was voted the companies’ favourite country to invest in,

out of 152 countries (outside North America). So don’t believe the companies’ claims that they are on the verge of walking away.

If Osborne succumbed to the pressure from the oil lobby, and thus cut fuel taxes without increasing North Sea taxes, then he really would deserve a bruising.

Fuel on the Fire: Oil and Politics in Occupied Iraq is published

by Random House Books on the 21st of April. People buying advance copies of the book at this site can get 30% off the cover price if they use PLATFORM as a promotional code.

You can also follow Greg Muttitt on media, speaking dates and more by following @FuelontheFire on Twitter.

You can also find PLATFORM on facebook and follow on Twitter @PlatformLondon.