Tax breaks for shale?

George Osborne has infuriated environmentalists by announcing big tax breaks for the fracking industry in a bid to kickstart a shale gas revolution that could enhance Britain\’s energy security but also increase its carbon emissions.

The Treasury has set a 30% tax rate for onshore shale gas production. That compares with a top rate of 62% on new North Sea oil operations and up to 81% for older offshore fields.

Erm, since when is a tax rate above the general corporation tax rate a tax break?

11 thoughts on “Tax breaks for shale?”

  1. We have an interesting economic experiment going on in the UK; in energy policy, and increasingly elsewhere, the government is setting what it considers a reasonable return, and fixing taxes, prices or subsidies to give that return. So the signalling function of profits or losses is completely lost. I wonder what economic theory says of that idea. One result is that your company’s profitability is determined by how well you can cozy up to politicians. So that’ll end well.

  2. “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land ….”
    — Adam Smith: The Wealth of Nations

  3. Not sure about this but…
    The 30% is a royalty on production. You sell £100 of gas wholesale, give £30 to Osborne right away. Then your sales are £70 from which you deduct your costs, and if you have made a profit after costs then you pay corporation tax on the profit.
    So Osborne is kindly only taxing fracking at around 53%?

  4. I think is falls into the same category as the non-raising of fuel duty, which we are supposed to celebrate and thus worship the ground that the great tax-cutter Osborne walks on.

  5. the Graun’s article on this is a masterpiece of obfuscation – it compares the “generous” 30% CT only rate without Petroleum Revenue Tax (the same as all other new gas fields) with the *maximum* CT plus PRT rate applicable to old oil fields. It sounds like they’re bent out of shape about the field allowances as well (the amount of hydrocarbons you can produce before becoming liable for tax).

    The raw truth is that if shale becomes massively profitable then the tax rate will be raised – we saw in the Budget a couple of years ago that even Osborne can’t resist capturing high North Sea profits for the Treasury so he’s almost certainly doing a classic bait and switch – set up a low tax rate initially to drive creation of an inherently non-mobile business, then if it comes good and starts making money, jack the rates up. (As an aside, this strategy used to work really well in SimCity to ensure hi-tech businesses grew)

  6. A “break” is relative to wherever you set your datum. The whole point of a complexificated tax system, so far as I can tell, is to cause constant hullabaloo in the population as they point out that somebody else is paying less tax than they, which is of course unjust. Divide and conquer, and all that.

  7. Arthur Negus,

    An excellent quote, spoiled only by one fact – British oil and gas aren’t owned by the landowner, but by the State.

  8. “One result is that your company’s profitability is determined by how well you can cozy up to politicians. So that’ll end well.”

    But that’s ok, because they’ve thought of that with the anti-lobbying legislation, which applies to you unless you’ve successfully lobbied against that.

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