UK Government ‘squandering taxpayers’ millions’ by propping up North Sea firms — report

THE UK Government is “squandering” taxpayers cash by propping up North Sea oil and gas firms, a think tank has said.

The Green Alliance has produced a new report which outlines the damage of giving tax relief and subsidies to energy giants, and calls for them to be reassessed.

A former energy minster and serving Tory MP has backed the calls, saying that the UK Government has to ensure there is a “balance” between the subsidies and net zero ambitions.

According to the report, published today, the tax regime for oil and gas firms has created a “skewed” system and it no longer makes economic sense to grant more extraction licenses.

It comes as six new oil and gas fields are set to be given the green light by the government, just months after the Glasgow hosted the COP26 climate conference.

The Green Alliance report states: “Between 2016 and 2020, oil and gas companies received £9.9 billion in tax relief for new exploration and production, and £3.7 billion in tax relief for decommissioning costs.

“As a result…the UK has one of the most skewed tax environments in the world for oil and gas production.

“In 2019, the UK government received less than $2 per barrel of oil in tax, compared to nearly $22 per barrel in Norway.”

This skewed system, the report argues, has resulted in corporations being paid by the taxpayer to operate in the North Sea.

It continues: “In 2019, BP’s North Sea operations paid an effective tax rate of minus 54 per cent.

“In total, since 2015, the UK government has made net payments to ExxonMobil, BP and Shell totalling £1.25 billion.”

It also explains that decommissioning tax relief for firms will only increase in future as oil rigs age. Currently firms can claim back almost all the tax they spend on decommissioning, building new infrastructure and research.

The cost of decommissioning has already risen from 5% to 15% between 2010 and 2017, with the Oil and Gas Authority warning it is likely to rise further.

The report explains: “It is likely that North Sea oil and gas production will become a significant annual expenditure for the government, rather than a source of income.

“The more new extraction is permitted…the more UK taxpayers will be locked into paying for decommissioning costs, in return for declining revenues.”

Chris Skidmore, Conservative MP and former energy minister, said: “The North Sea is a mature basin with declining reserves – and it’s vital the UK taxpayer is not left to carry the risk of stranded assets as we transition to net zero.

“As the former government energy minister who signed net zero into law, I think we need to look again at the tax regime oil and gas companies are operating under to see if the balance is right.

“As this new Green Alliance report points out, without tax reform, proposals to open up new North Sea fields and grant licences will lock in further costs to taxpayers. The tax regime is failing to reflect the need to transition to lower carbon sources of energy”.

Heather Plumpton, policy analyst at Green Alliance, said: “North Sea oil and gas extraction no longer makes economic sense for the Treasury, taxpayers or consumers.

“The North Sea is operating under a tax regime that hides market signals from investors. It’s time for the UK to stop the oil and gas subsidies, and instead support the transition to a zero carbon North sea.”

A UK government spokesman said: “We’re leading the world in building back better and greener from the pandemic.

“We were the first major economy to commit to net zero by 2050 and one of the first to phase out petrol and diesel car sales by 2030.

“The UK oil and gas industry has paid around £375bn in production taxes to date. Relief for decommissioning costs is a fundamental part of the UK’s tax system, contributing to the safe removal of oil and gas infrastructure from our natural environment whilst ensuring companies are encouraged to invest in the UK.”

Previous ArticleNext Article

Leave a Reply

Your email address will not be published. Required fields are marked *