By Adam McGibbon a campaigner at Global Witness.
As last summer’s heatwave ravaged Europe, while MPs were on recess, the UK Government quietly announced a consultation on an unprecedented tax giveaway to oil and gas companies – ‘Transferable Tax History’ (TTH).
Transferable Tax History, if passed in this autumn’s Finance Bill, would be unprecedented It would allow companies who are buying oil and gas fields in the North Sea to not just buy the fields themselves – they can buy the tax history of the field too. The Government says it needs to do this as part of its ‘Maximum Economic Recovery’ strategy – the legal requirement for it to ensure every last drop of oil and gas from the North Sea is extracted, and at a profit for companies. They claim it will make the North Sea more open to new entrants who want to take over extraction from late life fields.
This is important because the tax histories of oil and gas fields determine how much the owner can access in tax breaks when the fields are due for decommissioning – the process of dismantling oil and gas infrastructure and returning the area to its pre-drilling condition. Given that we as UK taxpayers are already expected to pay £24 billion in tax breaks for oil and gas companies that have got rich from the North Sea, this concerns every one of us.
The Treasury’s ‘technical consultation’ on TTH was launched in July this year, a few weeks before Parliament went on recess for summer, and closed on 31st August, the week before Parliament returned. It seemed likely that only those that had prior knowledge of TTH – like the oil and gas industry who the NGO InfluenceMap have demonstrated were pushing for TTH in the first place – were likely to respond.
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At Global Witness, we commissioned independent economic analysis of the Government’s plans. We found that this is a plan with many downsides.
This calculated TTH could cost taxpayers more that an additional £3 billion over 10 years in decommissioning tax breaks. Given that analysis for the Financial Times has shown that existing decommissioning costs are already so gigantic they could wipe out all remaining North Sea oil and gas revenue, adding even more costs for taxpayers on top of this is financially reckless. The scale of this tax cut is particularly scandalous given huge Government cuts for renewable energy programmes.
It’s possible that TTH may even fail on its own terms by potentially creating perverse incentives where it’s cheaper for companies to stop producing than to continue drilling. It may end up being a huge giveaway to big oil and gas companies like BP and Shell who can inflate the prices of their fields to new buyers, knowing that the tax history makes it more valuable. The Treasury’s data has projected the TTH’s impact for five years in the future, ignoring the fact that the vast majority of the impact won’t be seen until after five years, when decommissioning tax breaks come into effect. It isn’t even likely to have any benefit for North Sea oil and gas workers – the Unite Union, have been on record stating that the benefits of previous tax relief has not been passed on to North Sea workers. Research by Platform and Oil Change International also shows that the major North Sea tax cuts over the last 40 years did not lead to higher employment, and neither did tax rises reduce employment.
In addition, TTH doesn’t take any account of the Government’s international climate commitments. No assessment has been made of the glaring fact that if the world is to have any chance of having a safe climate, 80% of fossil fuel reserves must stay in the ground. This puts TTH at odds with the Government’s international climate commitments. Any policies that seek to extract more oil and gas fly in the face of the Paris Agreement commitments, and contradict the Government’s own scientific advice. After a devastating summer heatwave, this is deeply negligent.
Up until this point, Transferable Tax History (TTH) has escaped any real scrutiny. Shadow Treasury Minister Clive Lewis brought the issue into the mainstream with an article in The Times last week, quoting Global Witness’ analysis.
Transferable Tax History is fatally flawed. The Government must immediately scrap the implementation of TTH and review its North Sea oil and gas policy, to reconcile it with a long-term plan to fund decommissioning and with the UK’s climate goals. But it’s not going to do this unless further pressure is put on them to remove TTH from the Finance Bill.
Global Witness’ economic analysis into Transferable Tax History, and a submission to the Government’s ‘technical consultation,’ can be found here.