Oil & Gas UK slams report on ‘subsidies’

An oil and gas trade group has rejected a UK House of Commons committee recommendation to cut fossil-energy tax allowances that the committee described as subsidies.

The group, Oil & Gas UK, called that characterization “disingenuous and misleading.”

A report by the House of Commons Environmental Audit Committee (EAC) said, “Field allowances for North Sea oil and gas do not fully offset relatively high starting rates of corporation tax and petroleum revenue tax. The allowances nevertheless represent a subsidy for the use of state-owned fossil fuel deposits.”

The committee issued the report amid calls by the government to trim subsidies for nonfossil energy, which have been blamed for sharp rises in UK electricity costs. The EAC report opposed that effort and called for “a new target: to reduce the proportion of energy subsidies that support fossil fuel rather than low-carbon consumption.”

Oil & Gas UK Chief Executive Officer Malcolm Webb said that during the past 40 years the industry has invested more than £300 billion in capital and incurred £180 billion in operating costs to produce 41 billion boe of oil and gas. It has paid production taxes, levied on profit, exceeding £310 billion.

“In any normal definition, subsidies provide relief for someone’s costs,” Webb said. “This industry receives limited allowances from 62% to 81% taxes on profits for certain marginal investments, with the rate of tax never going below 30% (versus 23% for other businesses in this country) and reverting to 62/81% 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.”

To assure production of the 24 billion boe of oil and gas thought still to be recoverable off the UK, Webb said, the government must keep the financial regime competitive with tax measures that aren’t necessarily subsidies.

“The EAC seems to have aligned itself with the notion that any allowance from immediate taxation constitutes a subsidy,” he said. “On that basis, every taxpayer in receipt of a personal tax allowance is being subsidized. We strongly suggest that the EAC needs to think again.”

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