As oil hits $110 a barrel, profits for businesses extracting it from the North Sea are soaring. As petrol hits £1.50 a litre, the cost of heating oil is the highest in seven years and domestic fuel bills are up by more than 50% for many, Scots feel the pain – but there is no gain, as almost none of the extra profits will flow back to Scotland.
The EU Commission is likely to propose EU countries set a windfall tax on energy producers’ profits – but the UK Government is unlikely to follow suit.
In contrast to the situation in the UK, Norway gets $21 for each barrel of oil produced – the money flows into the sovereign wealth fund which provides more than a fifth of Government revenue. Norway’s fund, which stands at $1.3 trillion, is divesting from Russian investments.
The North Sea also produces about half of the UK”s supply of gas -and British gas recently revealed that its profits are up by 44%. – the massive rise in world prices means that more money is being extracted from hard-pressed consumers and passed to energy producers.
Very little of those profits are reclaimed in taxes in the UK. Oil and gas producers have donated generously to the Conservative Party, however – more than £400,000 in 2020-21, while the government mulled controversial new licences to explore the North Sea -( which were granted last month.)
Oil apparently has very little direct benefit for Scotland’s finances
The ‘GERS’ figures, which show Scotland’s finances with all of the restrictions that come with being part of the UK, report that Scotland’s revenues for 2020/21 were virtually unchanged whether a geographic share of oil is included or not. Scotland receives pennies for each barrel of oil due to the UK Government’s deliberate policy of not taxing oil in the way other countries do.
Scotland of course has no sovereign wealth fund. Nor does the UK. One was proposed by Tony Benn in the Labour government which oversaw the beginning of Scotland’s oil industry – but he was overruled in cabinet.
Subsequent Conservative Governments, which Scotland rejected at the polls, chose to establish a low-tax regime which meant energy producers paid much less tax than elsewhere.
When the price of oil fell back, the UK government handed the oil companies rebates and subsidies which saw the UK make a loss on oil – whereas Norway continued to bring in hundreds of millions a year.
The UK Government does receive tax on petrol – but only a population share of that is allocated to Scotland’s account in GERS.
Petrol is heavily taxed and about 65p a litre goes straight to the UK Government so the UK Government gets its oil-related taxation from the people not from the big corporates in the oil industry.
As petrol and diesel prices go up on the world markets, more money flows to the producers. That is money they did not expect or forecast to earn.
These soaring profits will further increase pressure for a windfall tax – one reason the UK Government may be reluctant to do so is that it would have to add the sum to GERS figures which will come out just before the next independence referendum.
An independent Scotland could set a windfall tax
The Guardian reported last month that: “Most UK oil and gas companies have barely paid any tax over the last five years. Nineteen North Sea oil and gas companies, including BP and Shell, have actually been net recipients of taxpayers’ money. These rebates have made the UK tax regime one of the most generous in the world, with an average levy per barrel of oil of under $2, compared with, for example, $21 in Norway.
As gas prices mounted earlier this year, BP chief executive Bernard Looney said:
“When the market is strong, when oil prices are strong and when gas prices are strong, this is literally a cash machine.”
The Scottish Government currently has no powers to increase the taxes on energy producers who are making huge profits from assets belonging to the people of Scotland. Only independence can change that.