This week’s confirmation that tax revenues from North Sea oil and gas have gone into “negative” territory for the first time passed with surprisingly little comment. After 40 years, it is the end of an era that became as contentious as it was fortuitous.
Under complex tax arrangements, many of them peculiar to the industry, companies are allowed to recoup tax which was paid in the past.
Not only are the oil giants no longer contributing much, but the taxpayer is paying them very substantial sums as reimbursement of what they handed over in the good years.
In 2014-15, the five biggest beneficiaries of this enviable arrangement shared payments of more than £1.1 billion.
Last year, according to HMRC, rebates on Petroleum Revenue Tax totaled £650 million, which tipped the balance into negative territory. These paybacks will continue for years to come.
In addition, decommissioning costs can be set against tax paid, stretching back “almost indefinitely”.
With many fields coming to the end of their lives, and an estimated decommissioning bill of £47 billion, this is pretty much an open-ended commitment which HMRC will have to live with.
On top of all that, there is the persistently low price of oil with Brent currently trading at $48 a barrel.
In the face of these conditions, the UK Government cut PRT last year to encourage new investment.
So, from every direction, the tax take is down while the outgoings are increasing.
These circumstances led to this week’s news from HMRC that the North Sea provided “negative” revenues of £312 million in 2016-17 as opposed to a positive figure of £10.9 billion as recently as 2011-12. In future, it would take an awful lot of production just to negate the payouts which big oil’s finest accountants are now busily calling in. That is not on the horizon.
None of this is great news for the UK economy but would have been absolutely devastating for Scotland’s alone.
Often, it takes decades for the difference between political claims and actual outcomes to materialise.
In this case, the indictment, proof and conviction conveniently cover a period of just four years.
It is impossible to avoid the conclusion that Scotland avoided a devastating financial bullet after the Scottish Government’s shameless White Paper, published in 2013, told us, without credible supportive evidence, that Scotland’s share of oil revenues in 2016-17 would be between £6.8 and £7.9 billion while a “cautious estimate” of oil price was $113 a barrel.
Neither, at that time, was there any acknowledgement of liabilities that were about to accrue though the reimbursement of PRT.
Did nobody in the Scottish Government know about that?
In short, the whole financial edifice we were invited to vote for was built on a deception which, in the annals of political infamy, ranks alongside Boris Johnston’s £350 million a week for the NHS.
Over a longer perspective, the tragedy of North Sea revenues is that the halcyon years coincided exactly with the reign of Mrs Thatcher.
In this respect, the general election of 1979 determined everything.
The proceeds which accrued over the decade that followed correlated with uncanny symmetry to the additional costs of social security generated by soaring unemployment.
As Denis Healey, Chancellor of the Exchequer until Labour lost that election, reflected: “We didn’t actually see the rewards of oil during my period in office because we were investing in the infrastructure rather than getting the returns and, really, Thatcher wouldn’t have been able to carry out any of her policies without that extra five per cent on GDP from oil.
Incredible good luck she had on that.” Indeed she did.
One critical outcome that resulted from the 1979 election was abolition of the British National Oil Corporation.
We hear a lot about comparisons with Norway, but this one is usually overlooked.
Since 1972, Norway has had Statoil, which still owns and operates 60 per cent of activity in the Norwegian sector of the North Sea as well as functioning as a revenue-earning global player. The Labour government created BNOC as a UK equivalent, headquartered in Glasgow.
During the second reading debate on the Bill which created it, Patrick Jenkin – who would become Thatcher’s Energy Minister a few years later – denounced it as “the ugly, unacceptable face of Socialism”. As soon as they had the chance, the Tories set about dismantling it and handed the whole show over to an American-style free market regime.
If BNOC had survived, it too would have become a global player with vast economic benefits for the UK.
And if a state company owned and operated 60 per cent of the UK sector, we would not now be paying back billions in taxes to companies which screwed every last penny out of the industry, sometimes with scant regard for human consequences.
All of that may be history but, it is history which can still be learned from.
The mindless ideological denigration of public enterprise rarely leads to much good – and it didn’t in the case of the North Sea.
While the debate about where or how revenues should have been spent belongs in the past, the importance of the industry itself is undiminished.
In the same week we learned that it is now costing the Treasury money, we also heard that a modest bounce-back in North Sea-related activity helped save the Scottish economy from technical recession.
There is no contradiction.
The North Sea remains hugely important to Scottish and UK economies, still supporting around 300,000 jobs. What’s more, there is plenty of good news about future activity, particularly as the big players – the ones claiming the tax back – wind down their activity and more nimble entrants recognise opportunities, encouraged by incentives from government.
For 40 years, political debates around oil have centred on how tax revenues have been utilised.
If the era of the North Sea being a source of tax wealth really has passed, then perhaps it is time for that debate to move on.
The future depends on investment and innovation, not political rhetoric. Even if the goose no longer lays golden eggs, it can still sustain jobs and prosperity.
It should be possible to find common ground on how that can best be done.