Watchdog forecasts plunging oil revenue
ALEX Salmond’s plans for an independent Scotland funded by North Sea energy have been dealt a blow by an official report that reveals tax revenue from oil and gas is to fall dramatically over the next three decades.
This year the Treasury will benefit from about £11.2 billion in taxes raised from oil and gas production in the UK. By 2040 that figure will have slumped to just £2.9bn, according to a report published yesterday by the public finance watchdog the Office for Budget Responsibility (OBR).
Predictions of dwindling revenue were seized on by the unionist parties, which claimed the figures highlighted the dangers of an independent Scotland relying too much on North Sea oil.
Scottish Secretary Michael Moore said the OBR report added to evidence that showed the “huge long-term consequences of leaving the UK”.
Mr Salmond, however, dismissed Mr Moore’s analysis as “scaremongering” and criticised the UK government for creating instability in the North Sea oil industry.
The OBR report also revealed a far more pessimistic outlook for the future of the off-shore industry than the watchdog reported this time last year.
Last year, the OBR predicted tax revenue raised by oil and gas production would come to £5.7bn in 2040, almost double yesterday’s estimate of £2.9bn.
A fall in the forecast for the price of oil combined with increased production costs accounted for the revised estimate.
The report noted that oil and gas production had dropped by 60 per cent since its peak in 1999. Tax revenue from oil and gas is currently 0.74 per cent of UK Gross Domestic Product (£1,521bn). By 2040, revenue from oil or gas will only be 0.05 per cent of GDP – the equivalent of £2.9bn.
The OBR report said: “The large swings in prices over the past decade have made UK oil and gas revenues the most volatile of the main tax streams. Higher oil and gas prices than expected would boost profits although, if they were associated with strong cost pressures (as in the mid-2000s), the gain in receipts would be dampened.
“In contrast, persistently low oil or gas prices would not only reduce profits but also discourage investment and accelerate the decommissioning of fields. In such a scenario, the drop-off in production, and hence receipts, is likely to be steeper than envisaged here.”
Apart from some energy production on-shore and some gas produced at Morcambe Bay, off-shore drilling in the North Sea accounts for almost all of UK oil and gas production.
Mr Salmond has claimed an independent Scotland would take control of 90 per cent of the North Sea fields, transforming the nation’s fortunes.
But Mr Moore said yesterday: “The UK government is doing all it can to help maximise production in the North Sea and create an environment which makes the most of our oil resource. The sector is hugely important in Scotland, as are the jobs and skills which depend on it throughout the UK. Our work on decommissioning tax relief is undoubtedly helping.
“But today’s report shows the effects of a drop on oil revenues and the Scottish Government cannot ignore the impact of the OBR’s halving of its forecast from the North Sea over the next 30 years. We know it is a volatile commodity. That risk is far better handled as part of the wider UK, where oil revenues represent a much smaller part of the economy.”
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Saturday 25 May 2013
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