Tax breaks for riskiest oil drilling?

Posted by Richardg — 27 May 2011 at 5:45pm - Comments

There’s a dangerous storm brewing in the North Sea. But this is no natural disaster - it’s been whipped up by oil and gas companies lobbying for a major tax cut.

In the Budget, the Chancellor, George Osborne, announced a fuel duty stabiliser. When oil prices were high – over $75 a barrel to be precise – he’d cut taxes on motoring, and tax oil companies instead. When oil prices dropped below $75 a barrel, he’d whack a tax on fuel, but give oil companies a break. 

The oil companies reacted like spoilt children told that they can’t have a second bowl of pudding - despite independent analysts arguing that the tax would have no effect on North Sea investment.

Call me hard-hearted, but I’m not that concerned by fossil fuel companies moaning about taxes. Even the Financial Times agrees. “The UK and the US have long undertaxed the [oil and gas] sector,” it thundered in an editorial earlier this month, arguing that a tax on ‘superprofits’ was “long overdue.”

No, I’m not worried about oil companies’ profits. What really worries me is the idea that the government is going to bung the industry more subsidies in an effort to shut it up.

George Osborne has been pretty candid about his desire to squeeze as much oil out of the North Sea as he can. While we’re worried about the potential for a major oil spill, he’s considering giving tax breaks to encourage companies to drill in really dangerous places.

Take the west of the Shetland Isles: to most sane-thinking folks, it's a hazardous, fragile environment - deep, cold and prone to major storms plus high winds.

It’s certainly not the sort of place where we should drill for fossil fuels, which is why we're challenging the government’s decision to give Chevron a license to drill there.

The Chancellor has already given major tax breaks – called new field allowances – to companies extracting gas off the coast of Shetland. But he’s been dropping hints at extending this to oil companies.

Osborne told a House of Commons Committee that: “We have not cracked West of Shetland yet… [new-field allowances] are a relatively new feature of the regime, [which] we are actively looking at. I certainly want to encourage new exploration in West of Shetland.” 

I can’t think of anything more stupid than bribing companies to drill in hazardous and risky places.  I can only assume that’s why I’m not a government minister.

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