3 comments on “Windfall taxes on oil again

  1. There is no reason why, when handing out licences, the state cannot put a very high effective marginal tax rate on income from very high oil prices. It would mke very little difference to the money that oil companies would stump up. It would earn HM Government extra at times like this, and yet it would add no uncertainty to the investment decision process.

    But if you didn’t do it at the beginning, doing it later just cuts investment, because investors hate political risk. It would also reduce the licence fees you could charge.

  2. Serf – the marginal tax rate on production in the UK is between 50% and 75% depending on the age of the field; at one point, thanks to Tony Benn, the Govt imposed a marginal rate of 100.6% until someone pointed it out.

    In production sharing contracts overseas it’s usual for high oil prices to result in a marginal government take of between 80% and 100%

  3. @ Everybody
    Have you looked at the decline in UK North Sea Oil production after G Brown imposed a badly-designed tax in the late-90s (I think it was 1998, but I’m not looking it up at this time of night)?
    Pre-Libya the major cause for the rise in oil prices was the Brown-induced slump in UK oil production (not geological – Norway’s production decline was much smaller) because the after-tax reward for investment in secondary and/or tertiary recovery was below the oil companies cost of capital threshold.
    Governments can get away with one-off windfall taxes that are effectively confiscation of the property of subjects (whether corporate or living persons) but they are self-defeating when they are perceived as continuing and affecting future earnings.

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