North Sea receipts hit record low
The UK government has incurred a loss from North Sea oil and gas production for the first time since records began nearly 50 years ago.
UK oil and gas production generated negative receipts in 2015-16 of -£24m, compared with +£2.15bn the year before. Petroleum Revenue Tax (PRT) revenue was -£562m, following refunds to companies, while corporation tax revenue fell by 74% over the year to £538m. The North Sea contributed £10.9bn to the Treasury just five years ago. The UK's Scottish Secretary David Mundell called the latest figures from HMRC "particularly concerning". The Scottish government said the North Sea continued to represent "a huge opportunity for Scotland with impacts that go far beyond tax receipts". 'Historical low' HMRC's report said firms had seen their profits cut by the fall in oil prices in 2015. It stated: "Low oil prices in 2015-16 combined with continuing high levels of investment and increasing amounts of decommissioning expenditure have resulted in government revenues declining to -£24m, their lowest levels since records began in 1968-69." It added: "Significant investment in both existing developments as well as new projects, a decline in the volumes of oil and gas produced combined with a halving in the oil price between 2011-12 and 2015-16 has resulted in government revenues decreasing to their historical low." Tax receipts from oil and gas have been steadily falling since 2010-11, when they stood at nearly £10.9bn. PRT is a field-based tax charged on profits arising from oil and gas production from fields which were given development consent before 16 March 1993. In March, the chancellor announced a major overhaul of the North Sea tax regime, in response to difficulties facing the UK oil and gas sector. In his Budget statement, he said PRT would be "effectively abolished", having cut it the previous year from 50% to 35%. The existing supplementary charge for oil companies was also cut from 20% to 10%. 'Particularly concerning' The UK government's Scottish Secretary David Mundell said: "These oil and gas revenue figures are particularly concerning, showing a fall to their lowest level since the 1960s. "That's why the UK government is doing everything it can to support the North Sea industry to become innovative and competitive on a global scale. "No other government has supported their industry so extensively. "We have established the Oil and Gas Authority to drive greater collaboration and productivity within the industry, and in the last two budgets we announced major packages of tax measures worth £2.3bn to ensure the UK Continental Shelf remains an attractive destination for investment." He added: "We are working collaboratively with the Scottish government and Aberdeen City and Aberdeenshire Councils to support the area, but it is because of the broad shoulders of the wider UK economy that we are able to provide this support to our oil and gas industry, and to the thousands of workers and families it supports, at this very difficult time." The Scottish government's energy minister Paul Wheelhouse said: "The Scottish government is doing everything within its powers to support oil and gas companies and their highly skilled workforces. "But the UK government retains control of the main economic levers affecting the sector, including those on corporate taxes and incentives to invest in exploration. "The North Sea continues to represent a huge opportunity for Scotland with impacts that go far beyond tax receipts. "And while these figures highlight the current challenges facing the sector, in terms of the impact of these challenges on the UK and thereby Scotland's overall public finances, growth in onshore tax revenues is predicted to more than compensate for any decline in offshore tax receipts over the next few years." He added: "Industry initiatives are already under way to improve resilience and competitiveness and these are starting to show positive results: North Sea production has increased for the first time in 15 years, reflecting high levels of capital investment in recent years, and unit operating costs fell by 28% in 2015 - with a further fall of 20% predicted for 2016. "Nevertheless, further support is still likely to be required to ensure the industry's success over the longer term. "That is why we continue to press the UK government to provide support for exploration and enhanced oil recovery and to act quickly to deliver on its commitment to use the UK Loan Guarantees Scheme to secure new investment in oil and gas infrastructure." 'Broader contribution' Oil & Gas UK's economics director, Mike Tholen, said the industry had paid a total of more than £330bn to the UK Treasury to date. He added: "However, in recent times, tax receipts have fallen significantly. "This reflects downward production trends and falling oil and gas prices as well as the record investment in new developments (£38bn between 2010 and 2014). "The inevitable growth in decommissioning has also depressed North Sea tax receipts. "Despite the trend in production taxes, however, it must be noted that several billion pounds are paid each year in corporation tax and payroll taxes from the oil and gas industry supply chain, reflecting the sector's broader economic contribution."