Is this a Laffer Curve I see before me?

I think it could be, yes.

It comes after smaller companies such as Valiant Petroleum warned that they are re-evaluating new projects, since the Chancellor increased tax by 12 percentage points to more than 62pc.

Statoil, the Norwegian state-controlled company, said on Tuesday it will \”pause and reflect\” on the future of its Mariner and Bressay fields to the south east of Shetland.

There have also been reports that oil majors have withdrawn plans to sell billions of pounds in North Sea fields nearing the end of their lives, leading to fears they will be abandoned with oil still in the ground.

Whether this will actually lead to a decline in tax revenues overall is moot at this point: it certainly won\’t lead to a reduction in short term revenues. But it will definitely lead to a reduction in the amount of oil pumped up over the decades and so is quite likely to lead to a reduction in the long term tax take.

And do note that no one is trying to dodge a tax, no one is trying to pass it on. It\’s simply that the imposition of a tax has made previously viable activity now non-viable. We\’re, in that long term, poorer because of the tax.

6 comments on “Is this a Laffer Curve I see before me?

  1. No doubt the Saudis / Iranians / Iraqis will be happy with the tax hike.

    Seeing as he did it so as to reduce the price to consumers, the fact that it will lead to marginally less crude available is perhaps a little counter productive.

  2. Is this tax a one-off? If so that’s even worse because companies don’t like smash and grab.

  3. It also somewhat pokes Nick and Dave’s claims to be uber-bunny huggers:

    There have also been reports that oil majors have withdrawn plans to sell billions of pounds in North Sea fields nearing the end of their lives, leading to fears they will be abandoned with oil still in the ground.

    I imagine that many fields with small reserves still in the ground will not be economic to reopen once abandoned.

    So forcing their owners to close down early is hardly an efficient or environmentally freindly way to operate, is it?

  4. There are two other problems apart from Laffer;

    1. The cost will be passed on to those that pay it – employees, shareholders and customers. The duty comes down but the break even wholesale price goes up.

    2. Someone’s maths doesn’t quite add up and I hope it isn’t mine. £2bn levy for a 1p fall in duty. Duty is currently 57.95p a litre for regular road fuels. 56.95p per litre would be a reduction of 1.75%. If £2bn is that 1.75% then fuel duty revenues would be in the region of £115bn, and they most certainly aren’t.(more like £25-30bn)

  5. The Laffer curve exists only at the extremities and in the warped mind of rightwing economists wholly detatched from reality.

Leave a Reply

Name and email are required. Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>