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(Under)taxation of North Sea Oil and Gas Production and its Implications for Scottish Independence
The Guardian newspaper recently published an article by Aditya Chakrabortty entitled ‘Dude, where’s my North Sea oil money?’ (13 January 2014), which drew a comparison between Norway and the UK in terms of what approximately four decades’ worth of fiscal income from oil and gas production has meant for each country. The main thrust of the article was to suggest that the reason why the UK does not have a colossal nest egg like Norway’s is that the UK government effectively squandered its windfall in tax breaks. That is true, but not in the way Chakrabortty thinks.
Starting in 1981, once the Falklands conflict (and the need to pay for it) was over, the UK government led by Margaret Thatcher embarked on a process (which accelerated greatly under John Major and even more so under the Blair-Brown Labour governments) of levying progressively less and less taxes on oil and gas exploration and production activities. In other words, Chakrabortty is right in saying that most of the windfall was squandered in tax breaks but, overwhelmingly, the main recipient of these tax breaks was the UK oil and gas industry. As oil prices have skyrocketed from 2000 onwards, the differences in the amounts that the UK levies compared to other large North Sea producers (and not only Norway) have reached astonishing proportions.