BBC Home
Explore the BBC
BBC News
Launch consoleBBC NEWS CHANNEL
Last Updated: Monday, 5 December 2005, 18:43 GMT
Brown doubles North Sea oil tax
North Sea oil rig
The price of crude oil hit record levels this year
Chancellor Gordon Brown has announced a rise in the tax levied on North Sea oil producers in the wake of record crude prices.

Under the measure, the government's supplementary charge on energy companies will rise to 20% from 10%.

The industry was braced for the tax rise after hurricanes Katrina and Rita sent crude prices soaring this year.

The pressure on Mr Brown intensified in the autumn when oil firms reported much higher profits.

Shell reported a 68% rise in third-quarter profit while BP's profits rose by 27%, taking their combined earnings close to 6bn.

"Our economy has had to withstand an oil price rise from around $25 to a current price of around $55, which is also close to the level of almost all future projections," Mr Brown said.

"Returns in the North Sea are now nearly 40% on capital, compared with ordinary returns on capital of 13%."

Fuel poverty

However, Mr Brown pledged to give new incentives to companies for exploration and development of "the most difficult fields, by extending the exploration expenditure supplement to all ring-fenced activity".

Any extra tax that we pay is money that is no longer available for investment in the North Sea

Mr Brown also said there would be no further rises in the North Sea oil tax during this parliament.

Meanwhile, the extra revenue raised would be used to "help consumers most affected by the significant increases in global oil and energy prices" such as pensioner households, the government said.

The money would also be used "to invest for the longer term in tackling fuel poverty".

"I am also now able to freeze petrol and diesel and road fuel gases duties for this full financial year at an Exchequer cost for the full year of 600m," the chancellor said.

Economists at Deloitte said the increase was double the 5% they had expected and would raise 1.4bn for the Treasury's coffers next year and 5.2bn by the end of 2008.


The oil industry lobby group, the UK Offshore Operators Association (UKOOA), said it was "shocked" by the chancellor's decision.

"At a single stroke, the Treasury has rewritten the industry's future. It will severely undermine business confidence," warned the UKOOA chief executive, Malcolm Webb.

"This has been done not once but twice in the space of just three years and we fear that this time the North Sea will not be as resilient."

The rise could cost BP alone 400m a year, analysts said, if the oil price stands at about $60 a barrel.

"Governments levy taxes and we will do what we have to," said a BP spokesman. "But any extra tax that we pay is money that is no longer available for investment in North Sea oil and gas fields."

Shares in BP and Shell were not hit, however, because there was a fresh rise in oil prices above $60 a barrel on Monday.

BP shares closed up 0.3% at 659.25 pence and Shell closed 0.21% higher at 1,908p.

The new tax rise will take effect from 1 January 2006.

The BBC is not responsible for the content of external internet sites


Americas Africa Europe Middle East South Asia Asia Pacific