North Sea Oil to Post Losses of £1 billion a year
17.03.2016

North Sea Oil to Post Losses of £1 billion a year

North Sea Oil to Post Losses of £1 billion a year

North Sea oil is to post a £1 billion loss each year as tax rebates outweigh revenues, official forecasts have disclosed as George Osborne said a separate Scotland would have started life next week in financial crisis.

Projections produced by impartial Office for Budget Responsibility (OBR) found the industry made a £100 million loss for the public purse in the current financial year, the first in more than four decades, thanks to the collapse in the oil price.

However, its economists predicted that tax receipts will remain “negative” by up to £1.2 billion a year between 2016 and 2021 because of repayments to loss-making operators of corporation tax and petroleum revenue tax (PRT).

Announcing a support package for the beleaguered industry, Mr Osborne said it would not have been “remotely affordable” in Scotland under Alex Salmond’s timetable to break away from the UK on March 24 this year, following a Yes vote in the referendum.

The Chancellor highlighted official figures unveiled by Nicola Sturgeon last week which he said showed Scotland would have “struggled from the start” with the “burden of the highest budget deficit in the western world.”

Mr Osborne announced he was cutting a supplementary tax on oil and gas profits from 20 per cent to 10 per cent and “effectively abolishing” PRT by setting a zero rate, with the cuts backdated to January this year.

Industry body Oil & Gas UK welcomed the announcement, saying it would reduce the headline rate of tax paid by operators from between 50 per cent and 67.5 per cent to 40 per cent across all fields.

More than 65,000 jobs in the North Sea are thought to have gone since the oil price collapsed from its mid-2014 high of $115 per barrel to just under $40 yesterday and the industry is continuing to shed around 200 posts per day.

The OBR yesterday radically revised down its forecasts, predicting the North Sea will post a loss of £100 million this year for the taxpayer, before falling £1.1 billion into the red in 2016/17, £1.2 billion in 2017/18, £1.1 billion in 2018/19 and £1.2 billion in each of the following two financial years.

Overall, this amounts to a £5.8 billion loss over the next five years. This is because operators are permitted to ‘carry back’ their losses and offset them against tax paid in previous years, resulting in repayments from the Treasury.

In contrast, Mr Salmond and Nicola Sturgeon promised Scots a second oil boom if they voted for independence, with the North Sea generating between £6.8 billion and £7.9 billion in 2016/17, which they said would be the first year of independence.

Unveiling his tax cuts for the industry, Mr Osborne told the Commons they were only possible thanks to the “broad shoulders” of the United Kingdom.

The Chancellor said: “None of this support would have been remotely affordable if, in just eight days’ time, Scotland had broken away from the rest of the UK, as the nationalists wanted.

“Their own audit of Scotland’s public finances confirms they would have struggled from the start with a fiscal crisis under the burden of the highest budget deficit in the western world. Thankfully, the Scottish people decided that we are better together in one United Kingdom.”

Ms Sturgeon last week unveiled the Government Expenditure and Revenue Scotland (Gers) figures for 2014/15, which showed Scotland’s deficit was £15 billion that year, proportionally twice the rate for the UK as a whole.

However, the figures predated the complete collapse in oil revenues and included £1.8 billion generated from the North Sea.

A Scottish Government spokesman said: “Scotland’s economy is fundamentally strong – more than 90 per cent of it is onshore based, and even excluding the North Sea, Scotland’s output per head ranks third of the 12 UK countries and regions.

“Independent forecasts predict that onshore receipts will grow by £19 billion over the six years between 2014/15 to 2020/21, more than offsetting falls in offshore revenues.”

Source: www.telegraph.co.uk

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