Oil and Gas Westminster Mismanagement

Inconvenient truth about oil revenues leaves unionist commentators in disarray

ON Tuesday, last week Business for Scotland published a research briefing called “The Resource Governance and Taxation Generation Track Record of the UK Government in UK’s oil and gas sector”.  A significant piece of work and merited more publicity than simply putting it on the BfS site, so we alerted the Sunday Herald to the outcomes of the research and they ran it as the front-page splash.

We were comparing the performance of the UK Government to Norway in terms of managing oil and gas revenues. We found that the UK Government had underperformed Norway by a considerable margin. Norway generated £381 billion more than the UK Government in tax revenue from their North Sea operations between 1964 to 2016 — while producing 4.7 per cent less oil and gas. In the two years since the oil price dropped, Norway generated more than £29bn in oil and gas revenues, while the UK Government are predicted to lose £23 million in the same period.

Given the GERS report on Wednesday confirmed 2015/16 oil revenues were £222m, that means they are predicting a loss of £245m in the next set of GERS. The reason that an entire industry which is increasing production can generate a tax loss for the Government is because the UK Government over the last two years since the oil price dropped, gave Shell £179m in tax rebates, while Shell for example paid the Norwegian Government £4.589bn. UK taxpayers also gave BP £342m in tax rebates in the two years since the oil price dropped – making the UK the only country out of the 23 countries where BP operates where they received money rather than paid taxes.

The UK tax rebates were not specifically linked to any commitment to save jobs, and the UK sector seems to have shed significantly more jobs (120,000 since 2014) than the now much larger Norwegian sector (47,000 since 2013).  So it’s fairly clear the UK Government has underperformed against Norway in terms of managing resources – Norway without the so-called broad shoulders of the UK has a far more successful North Sea governance regime in place.

The response to this research was polemic and often childish and the arguments used to attack the findings were poorly researched and mostly completely wrong. It’s clear there is a double standard at play in the independence debate. Unionists can say anything they want, provide no evidence, leave vital facts out of their arguments, have zero track record in economics or research and their opinion is treated as wisdom from on high. However, if an independence supporter brings forward irrefutable evidence that the UK Government isn’t working in Scotland’s interests, then it receives bile, rants and raves.

The funny thing is the research isn’t actually controversial or dangerously radical. For example, Guardian economics editor Larry Elliot’s articles include “Norway’s $885bn-nil advantage in Britain’s sea of social troubles”, and “Britain has squandered golden opportunity North Sea oil promised” which he concludes with the words “An entire era can be summed up in three words: discovered, extracted, squandered”. Or Denis Healy (the former Labour Chancellor), who told Holyrood magazine in 2013: “I think we did underplay the value of the oil to the country because of the threat of nationalism” and “I think they [Westminster politicians] are concerned about Scotland taking the oil, I think they are worried stiff about it”.

Then there is the quote from a dangerous nationalist radical that gave me the idea for the comparison in the first place. David Cameron on the Andrew Marr show was asked “why Norway was doing much better than the UK?”. He replied: “Norway have as much oil as we do, and only four million people, not 60 million, so that makes all the difference.”  So in truth my research conclusions match the mainstream belief, and everyone who genuinely investigates fully agrees with it.

A couple of actual counter claims were made. Let’s look at those.

Some say we can’t compare Norway’s revenues as the cost of production is so much lower in Norway. In 2015/16 when those figures were generated the UK sector hadn’t yet completed its massive cost cutting exercise (including 120k in redundancies).  The closing down of the older more costly marginal fields was just getting started and the new mega fields coming online are now lowering the cost per barrel, as production flow rises. In our briefing we pointed out that estimates of the reduction in average production costs in the UK sector suggest a figure of around 45 per cent since the drop in the oil price. BP reports some of their North Sea oil fields are operating at $12.00 a barrel and that is profitable at today’s $52.72 price.

Another criticism is that the UK oil sector is on its knees and Norway’s is thriving, so we need tax cuts here. The whole point of our report is that Norway’s sector is thriving and as ours has been so badly stewarded that it it’s on its knees – so they agree with us?  Related to that was the claim that corporations are taxed on profits and they are not making profits. The problem here is that Shell, having received £179m in tax rebates from the UK Government in 2016 and also had its Petroleum Revenue Tax cut to zero, went on to declare the world’s largest shareholder profit dividend that year.

Now in 2017, Shell has declared a £22,254m profit jump from quarter one in 2016 to quarter one in 2017. So we have self-confessed socialists arguing that highly profitable mega corporations should be given huge tax breaks in a time of austerity – you couldn’t make it up. Note that smaller Scottish-owned oil supply companies who struggled because of the price fall get nothing from the UK Government even though some have seen their turnover half or worse.

Another source of derision was that the SNP supported the tax cuts. Yup, they did, and after decades of mismanagement of the North Sea maybe they had to play the ball where it lay. However, BfS doesn’t agree with the SNP on many issues and we state quite clearly that it’s time to start taxing the oil companies again, even phase it in if you have to – the only argument against this is that the North Sea revenues line in GERS would expand dramatically and they don’t want that.

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

9 Comments

  • All good – having lived in Norway & studied some Petroleum Economics there are reasons why the UK is in the mess it is w.r.t petroleum taxation. But that’s done and in the past that must remain (sic)
    How an independent Scotland would manage a declining resource base (that is not in doubt) and meet the tax obligations made on decommissioning when the Thatcher government was taking 95% and higher tax on 1980s production is a challenging question to which I have seen no answer!

  • I’ve been saying for a year,
    they would rather give the oil away until they have seen off the threat of independence, and then suddenly miraculously Scottish oil will generate the revenue it always should have done!

  • Great article which thankfully has reached the so-called mainstream media. I recall the stuttering hesitancy of Cameron during that Andrew Marr interview, as he manfully strove to keep the lid on this particular can of worms. He hesitated before stating that Norway has as much oil as “we” do. I’m convinced he stopped himself from saying, “huge oil fund”, but felt such an admission would be even more problematic. He also, deliberately in my opinion, got Norway’s population figure wrong, as an accurate number, closer to Scotland’s, would be an uncomfortable comparison if questions arose regarding our wildly differing economic performances. A wasted effort as this article shows.

  • You need to do a follow up article explaining how the UK actually makes money by giving away, for free, oil and gas.

    • But they ARE doing just that, and for the simple reason when (in their view) they have destroyed the independence movement, they know full well that what remains under Scottish seas far outweighs whats already been taken, so they are happy to accept short term pain in the sure knowledge that a couple of years lost revenue is a drop in the ocean compared to what they stand to gain!

  • Your assessment echos the informed view of those who look beyond the tabloid articles of mince served daily. This is a concise and well presented argument thank you for allowing me the glimmer of hope that I’m not the only one that thinks there’s something wrong with the numbers given out by wm

  • Could you identify the “self-confessed socialists arguing that highly profitable mega corporations should be given huge tax breaks”. The Westminster government is currently run by a hard right Tory party

    • Online several socialist bloggers made those arguments – we do not engage with trolls though as personal slanders and misinformation is used in response.

    • ‘£15 billion black hole’: the GERS lie. Frann, every Red Tory Brit Nat Unionist has used this lie, a lie which depends on the Brit Iron Heel Oligarchy giving away our oil to their pals and relatives on the Boards of the Oil Giants for nothing. They are literally sucking Scotland dry.
      We are being robbed blind, yet still some Scots are happy to see our children, disabled and elderly ground into submission and penury at the hands of an English dominated WM dictatorship, for money and power.

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