Wednesday 4 December 2013

Oil & Gas UK rejects findings of the House of Commons Environmental Audit Committee’s Report on Energy Subsidies:

Commenting on the Committee's report published on 2nd December 2013 Malcolm Webb, CEO of Oil & Gas UK said:

"The production of offshore oil and gas is subject to the highest corporate taxes in the UK, ranging from 62 to 81 per cent. Tailored tax allowances, introduced by this and the previous Government, 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.

"It is disingenuous and misleading of politicians to suggest that the offshore oil and gas industry has been a recipient of subsidies. The truth is that over the past 40 years more than £300 billion of private capital has been invested and a further £180 billion paid in operating expenses in order  to produce over 41 billion barrels of oil and gas for the UK, on which over £310 billion of production taxes have been paid to the Exchequer. The Exchequer has further benefitted (this year alone by approximately £5 billion) from the Income Tax and National Insurance Contributions paid by the 450,000 people in the UK for whom this industry provides employment.

“The £310 billion paid are in the form of corporate taxes levied on profits, after all costs have been paid by the industry. In any normal definition, subsidies provide relief for someone’s costs. This industry receives limited allowances from 62 to 81 per cent taxes on profits for certain marginal investments, with the rate of tax never going below 30 per cent (versus 23 per cent for other businesses in this country) and reverting to 62/81 per cent once the allowance has been used.

“To describe tax allowances on capital investment as subsidies is to imply capital expenditure should be taxed. It is extremely worrying that this notion should be promulgated by a House of Commons Select Committee, 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 per cent of GDP, whereas the taxes paid on the profits from production have amounted to between 15 and 25 per cent of all corporation taxes received by the Exchequer, almost an order of magnitude larger.

"With an estimated 24 billion barrels still to be recovered, there should be a strong future for the North Sea. To ensure the sector remains a driving force in the Britain’s economy, we need to maximise the recovery of our oil and gas resources, a policy to which all three major parties subscribe. This can only be achieved by ensuring the UK Continental Shelf remains an attractive and competitive destination for investment. For that to happen, the 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 EAC seems to have aligned itself with the notion that any allowance from immediate taxation constitutes a subsidy. On that basis, every taxpayer in receipt of a personal tax allowances is being subsidised. We strongly suggest that the EAC needs to think again.”

For further information please email Press & PR Manager Laura Ackland on lackland@oilandgasuk.co.uk.