New analysis of the UK's North Sea oil and gas suggests that the combination of tax giveaways by the government, and aggressive avoidance by multinationals, means that the country may actually be subsidising the extraction of its natural resources. And this at a time of continuing ‘austerity' measures, that a UN treaty body has harshly criticised for driving poverty and inequality, undermining citizens' human rights.
An important shift over the last two decades has been the emergence of active civil society movements in many countries focused on the natural resource revenues obtained by their governments: whether sufficient revenues are obtained, and how they are spent. Sadly, such movements have been largely absent in high-income countries — and nowhere more obviously than the UK.
The UK provided the original base for the Extractive Industries Transparency Initiative, launched by Tony Blair back in 2002. But a failure to obtain appropriate revenues for the state was seen as a problem of developing countries and corruption, rather than what it is — an issue of basic state accountability in the face of aggressive multinationals. And so for me than a decade, the UK did not even join its own initiative, and only became a candidate country in 2014. It is currently listed as ‘implementing EITI, not yet compliant'.
A new report published today by the International Transport Workers' Federation (ITF) sets out a series of shocking statistics on the UK's failure to obtain an appropriate share of its own resource wealth. Among them, these stand out:
- In 2014, UK consumers paid 6 times more tax on petrol, excluding VAT, than the North Sea oil and gas industry paid on all taxes related to production.
- Chevron's effective tax rate in 2014 on earnings from North Sea production was 5.4%; statutory tax rates (of various types) on oil and gas should have totalled 61-82%.
- In 2014, 3 (Shell, BP & Total) of the top 4 North Sea producers produced more than £4.3 billion worth of oil and gas and received over £300 million in net tax refunds.
The ITF argue that while the oil sector has successfully lobbied for and won huge tax breaks from the UK government, the companies involved continued to pursue aggressive tax avoidance as standard practice. The Chevron report (see graphic for UK structure, click to enlarge) provides a detailed case study of tax dodging tactics which are replicated by others, particularly Nexen — on which the Times had a frontpage splash yesterday, using ITF analysis to show that the Chinese government-backed company received tax credits of £2 billion.
The ITF analysis covers 2014, when oil prices were still relatively high. Since then the oil sector as a whole has become a net tax drain on the UK budget, not including direct subsidies. On that basis, the ITF conclude that UK taxpayers are now likely to be subsidising the world's largest oil companies to exploit the country's natural resources.
The report, and much more, can be found at http://www.chevrontax.info/. We highly recommend a visit — and if you're in the UK, you may want to raise this with your representatives. (If you're in Scotland in particular, you want to consider what this analysis entails for yesterday's data showing a large, implicit deficit for an independent Scotland. Would an independent Scotland subsidise the oil and gas sector? In the absence of independence, should the UK be doing it?)
NB: This blog was first posted on the Tax Justice Network website and has been reposted here with their permission
I happen to think the questions regarding Scotland particularly pertinent
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“In 2014, UK consumers paid 6 times more tax on petrol, excluding VAT, than the North Sea oil and gas industry paid on all taxes related to production.”
This will almost certainly be because, with oil at $30-40 per barrel, it is costing the companies more than the sale price of the barrel to extract. They’re making a loss, in other words (this isn’t entirely surprising – the UK North Sea is a high-cost region). Most of the major oil companies have seen their profits shift from crude production to refined products and chemicals following the collapse in the oil price. BP slumped to an overall loss of $6.4bn in 2015, it’s hardly surprising they’re not paying much tax.
You might need yo read the report in more detail
Nope, in 2014, the average price per barrel was $95…
If you look at the Norwegian revenues from oil and gas (similar geology, similar production rate, but higher direct costs) then they managed to get £30Bn in tax revenues from oil & gas in 14/15, £20Bn in 15/16 and are projecting £10Bn for 16/17. This is not the money they receive from their sovereign wealth/pension fund.
I am a Scot and am very interested in what is happening in Norway about oil. Can you tell me where you got your information about Norway ?
There, and not a Jersey or Guernsey entity in the whole Chevron structure. Who said Channel Islanders were tax dodgers? :-)))
🙂
I am glad you bring this topic.
A couple of years ago I already the scandalous “With the second weakest tax system in the world, the UK collected only $21.50 per barrel of oil in 2008, compared to Norway’s $48.50 – less than half.” [1] But it is not easy to get more information on the background.
I was very disappointed that this was not taken up by Labour as one of the main topics in the last general election. Neither do they talk about it now, afaik.
[1] http://www.aljazeera.com/indepth/opinion/2014/09/scottish-independence-an-energy–20149953957684597.html
This is an area where politicians are really stupid or wilfully blind. I worked in the North Sea upstream area for a couple of years as a consultant to their supply chain. At the time my brief was to help them (get this Jake Barnes) to still make a profit if the price of oil dropped to $12/bbl. Given that we helped these very bright people to take as much as 20% off their drilling costs in 4 months it was clear that there was plenty more savings to be had upstream if they put their minds to it, i.e. cooperated.
Now, I would like to know the real operational costs of a barrel. I reckon it is still about $12, so when oil was at $120/bbl their unit profits would have gone up at least 20 times- for doing nothing different. Money for old rope.
And all this time they having been getting enormous tax breaks that no other industry was getting, while they mewling for even more and still taking no responsibility for the externalities, not to mention BP’s disastrous safety record (CEO Browne, who had left by this time Deepwater Horizon had really revealed the damage his cost-cutting had caused, was made a peer and then headed up a civil service Leadership Academy).
Finally, they will get a 75% subsidy for the de-commissioning in the North Sea from the taxpayers. 75%!!! And still that will not be not enough. Kurt Vonnegut: “So it goes”.