My first blog since the end of the #indyref campaign where I wrote in support of a #Yes vote – recent events have encouraged my return to the fold of Scottish politics and in this piece I hope to shed light on why a low oil price doesn’t automatically make Scotland an economic basket case.
When someone discusses “Oil Revenues” what is the first thing that enters your head? Is it;
1. The Tax levied per barrel of oil produced?
2. The Tax levied on the profit an oil company makes?
3. The corporation tax of an oil company?
This isn’t a trick question, but in order for you to understand, “Oil Revenue” we need to make something abundantly clear – there is a complex system of taxation that masks both the true value of oil & gas and the extent of its influence on our economy.
This is essentially the closest you will get to option 1. It is a levy on the profit of oil and gas extraction charged at between 30 - 20% and is usually lumped in with corporation tax.
Petroleum Revenue Tax
Petroleum revenue tax is option 2. It another additional Levy on the profit specifically arising from the extraction of hydrocarbons on the United Kingdom Continental Shelf (UKCS) It only applies to fields that were licensed & approved prior to March 1993 – meaning that newer developments are NOT subject to this charge. With this in mind, it is unsurprising then that “PRT” revenues are falling, as the fields developed prior to 1993 are all very near their end of field life. (The rate of pre-1993 PRT was reduced from 75% at inception to 50% after 1993) PRT was re-introduced on a case-by case basis, after tax-allowances at a rate of 35%
This is a special form of taxation that prevents oil companies from offsetting losses elsewhere in their business against an over performing asset. It applies only to Oil & Gas companies. Corporation tax is universal across the UK at 20%.
Now in anyones mind, that is a LOT of tax for oil companies to burden, but it is the price of doing business & many companies do still generate profit, when the oil they sell is priced high enough. It is conversely true that only when oil companies are making big profits, that the UK exchequer does too – this is important, because this what the media mean when they say “oil and gas revenues” are down, declining, diminished, waning, etc etc – BUT – it is not the whole story.
There are many companies, who support the oil & gas industry in myriad ways - but are not included in the figures for “Oil & Gas” because they are not directly profiting from the extraction of Oil & Gas nor are they subject to the taxes I’ve outlined. Does that make the income generated by these companies any less dependent on the Oil & Gas Industry? NO! Are their profits subject to the price of oil? Partially, but so long as the industry continues to operate, these companies still turn-over vast sums of money which contribute significantly to the economy of the UK.
Let me give you some examples. Emerson, Siemens, Honywell, ABB, Schlumberger, Halliburton, Baker Hughes, Weatherford, Oceaneering, Wood Group PSN, Enermech, Scotoil, Asco, Petrofac, Aramark, ESS, Stork, Amec Foster Wheeler, SubSea7, Bibby offshore, Siepem, Sodexo, Capita, Bond, Bristows, CHC Scotia, Odjfell Drilling, Dolphin Drilling, Diamond Drilling, Noble Drilling, Intertek, SGS, IKM, Tyco, Falck Nutec, Survivex, Sikorsky, AirBus Helicopters, Hilton Hotels, Marriot Hotels, Travelodge, Best Western, Holiday Inn, British Airways, Eastern Airways, Easyjet, Scotrail
The list is literally endless & the point I’m trying to make is that the vast sums of income tax, national insurance, VAT, Fuel Duty etc generated in support of the oil & gas industry, despite being generated in Scotland – is deemed “British” revenue by virtue that nearly 95% of companies that actively support oil & gas are tax-registered in England. At the moment, revenue from income tax & NI is based on “sampling” across the UK & by population share, which is a ludicrously simplistic & inaccurate method given the disparity of the wealth generated in Scotland and the tax ultimately attributed here.
If you work in Scotland, but your payroll department issues your payslip from a tax-registered office outside of Scotland, the tax you pay is not deemed Scottish, but British. In the instance where Scotland took complete control of its economy, there is a colossal slice of British Tax Revenue that would become exclusively Scottish & over the last 4 years the British establishment & media has worked hard to ignore / disguise that very fact.
What I’ve outlined above doesn’t just apply to the Oil & Gas industry; it applies right-across the UK in every town and city. The ramifications of correctly-allocating the tax revenues of companies that primarily do business in Scotland or within Scotland’s waters is profound & can’t be ignored when considering if Scotland should stay in the EU as an independent country.