UK Treasury Made Secret Tax Pledge To Oil Companies

by Jason Gorringe, Tax-News.com, London

14 August 2001

Speculation about the possibility of the imposition of a windfall tax on oil giants following BP's announcement of record £5.58 billion profits looks set to end. It was revealed at the weekend that the UK Treasury Department made a secret promise to the oil companies last year that it would not impose such a tax on their profits after they threatened to slash North Sea oil investment if the Chancellor imposed levies which they thought were unfair.

Fuel protestors and motorists reacted angrily last week to BP's gleeful announcement, and the RAC foundation condemned the petrol company as operating with 'excessive greed'. However, the Treasury's reaction to the furore could be regarded by critics as a little underhand, as although it said at the time that the windfall position had not altered, it also suggested that it was open to anyone to lobby for change, thus giving the misleading impression that the issue was open for negotiation, when in actual fact, it was already a done deal.

Experts are now suggesting that the imposition of a 20% surcharge on North Sea oil taxation may be the way to go. The oil tax regime was framed at a time of pronounced oil price weakness, but prices have since recovered strongly, and Maurice Fitzpatrick, head of economics at accounting firm Tenon believes that the imposition of this 'painless' tax would still leave a relatively generous oil taxation regime in place, and at the same time would finance a 3p per litre cut in excise duties. 'By slapping a 20% surcharge on North Sea oil tax the Treasury could raise about £1.5 billion a year extra...This would leave North Sea oil production companies paying a considerably lower marginal rate of tax than they paid in the early 1980s,' he explained.

Recommended