UK treasury seriously considers North Sea oil taxation

Feb 25, 2001 01:00 AM

North Sea oil taxation for a quarter of a century are being seriously considered by the Treasury. Production royalties and petroleum revenue tax (PRT) would be abolished if the plan is approved for inclusion in Chancellor Gordon Brown's Budget on 7 March.
Instead, there would be a new tax structure designed to encourage investment, punish profiteering, protect the environment and safeguard the 250,000 jobs that depend on the North Sea oilfield. If the package can be made to work, it will be a coup for the Chancellor, winning him plaudits from both the oil industry and the industry's critics, who are demanding a windfall tax on the bumper profits earned last year on the back of higher oil prices.
But there is some way to go in filling in the details, and an influential group of Treasury officials is urging that there should not be any changes this time to the notoriously complex North Sea regime. Oilfields opened before March 1982 pay a 12.5 % royalty on production, along with 50 % PRT on profits and then the usual Corporation Tax at 30 %.

Fields opened up after March 1982 and before March 1993 pay just PRT and Corporation Tax, and those opened up during the past eight years pay only Corporation Tax. Conventional thinking has it that tax ought to decline along with the level of North Sea reserves. Brown is being urged to think more boldly, not least to encourage development of the Atlantic Frontier, the new oilfields in deep water to the west of the British Isles.
Progress has been disappointing, hindered both by a now-resolved court case, brought by environmentalists against the government, and by the oil-price crash of the late Nineties. Equally disappointing has been the export performance of the oil-engineering industry since the Seventies. It is thought reform of North Sea taxation could spur change and help protect skilled on-shore jobs. Such reform could also discourage firms from simply 'harvesting' existing North Sea reserves for easy profits, an approach that could be bad for the environment.

Source: Associated New Media Ltd.
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