Treasury watchdog says oil price crash caused by corona virus will cut tax revenues from North Sea in half
- Tax authorities will receive £ 400 million from oil and gas projects in 2020-21 – less than a forecast of £ 700 million
- The forecasts will help campaigners for Scottish independence
The oil price crash caused by the pandemic will nearly cut tax revenues from the North Sea in half, the Treasury said.
The taxman will receive £ 400 million from oil and gas projects in 2020-21, the Office for Budget Responsibility (OBR) said in its latest outlook.
But this is below a £ 700 million forecast in the March budget – which was released days after prices started to fall. The recent crash is expected to wipe out £ 400 million of North Sea revenues annually until 2025.
This means that taxpayers will bring in £ 2.6 billion between now and 2024-25 – down from £ 4.5 billion predicted in March. The forecasts will help campaigners for Scottish independence.
North Sea revenues have always been touted as a major asset to the Scottish economy – with the slogan ‘It’s Scotland’s oil’ used in campaigns in the 1970s.
In 2019, OBR’s estimated revenues would reach £ 1.4 billion this year, which was cut in half in March 2020 and has now halved again. Oil started the year at nearly $ 70 a barrel. But prices started to fall in January when China – the world’s largest oil importer – shut up Wuhan. Within weeks, much of the Western world had also introduced restrictions that ground flights, took cars off the road, and closed factories.
At its lowest point, Brent crude oil, the global benchmark, dropped to $ 19 a barrel, while US oil was even trading in negative territory. Due to the shock, oil companies are trying to keep costs down and Royal Dutch Shell has reduced its dividend for the first time since World War II. Analysts believe that BP could follow soon.
Prices are now more stable at around $ 40, but it may take years for demand to match the amount pumped out every day – especially if there are further lockdowns in the US or a second wave of viruses in other countries.
In fact, some analysts believe that there could be a permanently lower demand for fossil fuels and that the pandemic will trigger a green revolution.
In its most recent outlook, the OBR said, “Our central scenario assumes that oil and gas revenues are on average £ 400 million lower each year than our March forecast – an overall reduction of around 50 percent. This reflects lower oil prices and lower production, partly offset by the effects of significant austerity measures. ‘
The OBR warned in March that its calculations of £ 700 million in revenue had been made when oil prices were expected to average $ 56 a barrel by 2020. Prices are expected to be around $ 37 this year and around $ 42.50 by 2025.
Falling prices had already led to downward revisions to oil and gas revenues. The Treasury’s oil and gas revenues consist of offshore corporate income tax and petroleum income tax.