Watching The world: Taxing into prosperity

March 28, 2011
Britain's legendary Prime Minister Winston Churchill must be rolling over in his grave, given new taxes the UK government plans for the nation's oil and natural gas industry.

Eric Watkins
Oil Diplomacy editor

Britain's legendary Prime Minister Winston Churchill must be rolling over in his grave, given new taxes the UK government plans for the nation's oil and natural gas industry.

"We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle," said Churchill, in a message that today's leaders just don't seem to comprehend.

Here's the latest: fuel tax is to be cut by 1 pence per liter from Mar. 22 as part of a raft of measures aimed at easing the pressures of rising petrol prices on families and business.

That's fine, perhaps, for the taxpayer worried about the price of gasoline at the pump. But guess what? To pay for that tax cut, Osborne will target oil and gas production instead.

Osborne plans to increase the supplementary charge levied on oil and gas production to 32% from the current 20%—a whopping 60% increase.

'We will consult'

Osborne stressed that to avoid discouraging investment in oil production, the measure could be reversed if the oil price fell sharply from its current level of about $116/bbl.

"If the oil price sustains a fall below $75/bbl, and we will consult on the precise figure, we will reintroduce the escalator and reduce the new oil tax in proportion," he said.

Promises, promises.

But Osborne does not seem to reflect on a number of different points in connection with his proposed tax on producers, one point being that an increase on their tax will inevitably end up at the pump anyway.

The new tax also flies in the face of predictions this week that global demand for oil is expected to grow by 110% to more than 190 million b/d by 2050, according to HSBC Bank.

Impossible goal?

That's a production figure some folks believe cannot ever be met by industry.

"Nobody believes the industry could produce double what it does at the moment, however clever it becomes in tapping previously uncommercial or inaccessible reserves," said Jeremy Warner, assistant editor of The Daily Telegraph.

Naysayers are in the majority these days, it seems. But there's no reason to deny the oil and gas industry the chance to do what it does best: discover, process, and provide the oil and gas needed to power the world on a daily basis.

But no oil and gas company is going to have the necessary incentive or financial resources even to try given the kind of taxes now being proposed by the British government.

Remember Churchill, Mr. Osborne: You can't tax your industry into production any more than you can tax your country into prosperity.

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