Wednesday
Mar182015
by 
Bishop Hill
Bishop Hill Osborne cuts the supertax
Mar 18, 2015 Climate: Parliament Energy: gas Energy: oil George Osborne has announced that he is to cut the Supplementary Charge - the supertax on UK oilfields - from 30% to 20%. He has also come up with a few other tweaks to the system that will allegedly encourage investment.
With oil prices apparently set to remain low for some time to come, I can't imagine that the North Sea is going to become price-competitive any time soon. If that's the case then there aren't going to be any profits to tax, so the difference between 20% and 30% is essentially nil. Onshore operators are not yet in a position to take advantage either.
Still, the move has annoyed the greens, so I suppose we should be grateful.
Reader Comments (12)
In a bid to be regarded as "serious" like Gavin Schmidt I would henceforth like to be known as @climateofpete. That should shake 'em in their shoes. Also in an attempt to be taken seriously I will be dressing up as a Sturmbahnfuhrer and posing in a KubelWagen like John Cook.
As for George Osborne, he doesn't do any lasting harm
Dog whistle politics.
It does nothing of value but tries to split the Scottish and English Labour parties so as the floating voters don't settle on Labour.
No-one votes for a divided house. And the English Labour (fighting off Greens) wills speak up to the whistle while the Scottish Labour (fighting off SNP) will not.
Petty party politics from a petty, partisan Chancellor.
Don't forget his green sop:
http://www.telegraph.co.uk/finance/budget/11479698/Budget-2015-Government-to-begin-subsidy-negotiations-for-Swansea-Bay-tidal-lagoon.html
My back of the envelope suggests that's £2.5bn of ker-ching.
Yes, well, good for you fellows. My apologies for going OT, but I have been anxiously awaiting news from the Salby lecture. Does anyone have any?
Yet another subsidy for fossil fuels! (/sarc)
Re steveta_uk
> Yet another subsidy for fossil fuels! (/sarc)
The odd thing about this is that by cutting the tax he has reduced the so called subsidy that fossil fuels get.
The reason for this is that Supplementary Charge is already reduced for some oil fields and because of that it is counted as a subsidy (for those fields). By reducing it for every oil field it is no longer counted as a subsidy so with one stroke of the pen he has reduced the fossil fuel subsidy and the tax.
It's worse than we thought. Osborne has signed our death warrants. The man is insane. Farewell Polynesia .
Anything that annoys the greens is good by me.
20% times what? Profit? Revenue? Oil price on each bbl extracted?
Out of each bbl extracted, what cash goes to the government as "tax", and how much retained by the organisation extracting the bbl?
In other words, at the end of each day of production, how much money does an oil producer have to pay to the government vs. how much value they keep to then ship the product, refine, and ship onward to markets?
Re: rms
Oil and gas exploration companies pay three different taxes on their profits.
Ring Fence Corporation Tax (RFCT).
This is similar to to Corporation Tax (CT). It is set at 30%. With CT a company can offset profits from one part of their business with losses from another to reduce their tax burden. With RFCT they can not do this. The tax applies to the profit from individual oilfields.
Supplementary Charge (SC)
This is the one that Osborne has reduced. Very similar RFCT.
Before 2011 this was set at 20%. It was then increased to 32% and is now being decreased to the 2011 level of 20%.
Some fields are allowed to claim a Field Allowance effectively reducing the tax rate.
Petroleum Revenue Tax (PRT)
It is only applied to fields developed before 1993 and is set at 50% of whatever remains after RFCT and SC.
This has also been reduced to 35% by Osborne.
The end result is that an old field will have to pay 81% of its profits in tax. This is made up of 30% RFCT + 32% SC + 19% PRT ( (100 - RFCT - SC) x 50% = 19% ).
In the warped economics of the greens this reduction in tax is actually a reduction in the "subsidy" an Oil company receives. Consider the following:
An Oil company has 2 oil fields, A and B.
Field A is old and is subject to all the above taxes at the full rate which means that on £1m profit it pays £810k in tax.
Field B is new and has a Field Allowance. It pays RFCT at 30%, SC at an effective rate of 15% and does not pay PRT. On £1m profit it will pay £450k. The greens count this as a subsidy of £360k (£810k-£450k).
With the new tax regime:
Field A now pays £300k RFCT, £200k SC and £175k PRT = £675k
Field B now pays £300k RFCT £48k SC = £348k
This makes the "subsidy" £327k (£675k - £348k) which is a reduction of £33k
@TerryS
Terrific. First time I've seen it so clearly succinctly explained.
Mar 19, 2015 at 9:33 AM | TerryS
Based merely on recent public performance, I am sure Natalie Bennett could read your easy to understand guide and still come to the conclusion that it is a subsidy.