Oil tax could bring cheaper petrol

British oil companies pay less tax than Norwegians

Petrol could be made cheaper by taxing oil companies on their windfall profits, MPs have been told.

Chancellor Gordon Brown could cut fuel duties by raiding the £7bn windfall profits North Sea oil companies have made from the rise in world oil prices, academics say.

The tax regime is relatively weak in terms of capturing revenue

Dr Philip Wright

Dr Philip Wright, of the Sheffield University energy studies project, urged Mr Brown to overhaul the way the companies are taxed, saying there was scope to generate "much more substantial revenues" for the Exchequer.

Giving evidence to the Commons Treasury Select Committee, he said the government now collected 11 times as much in revenue from taxing drivers at the petrol pumps as it did from the oil companies.

The massive discrepancy meant the chancellor could safely raise taxes on the companies without the increase being passed on to motorists, Dr Wright told the MPs.

Less revenue

Exploration companies operating in the British sector of the North Sea were far less heavily taxed than those in Norwegian waters.

"The tax regime is relatively weak in terms of capturing revenue. Certainly, compared with Norway, the revenue take per barrel is considerably less. This is something we should focus on," Dr Wright said.

So far, he said, the government's tax take from the companies was estimated to have risen by a "fairly negligible" £2.4bn, as a result of the increase this year in the world price of crude oil of around 10 dollars a barrel.

To cut petrol duty by 1p a litre would cost the Treasury around £500m, so the additional revenue could cover a duty cut of just under 5p.

However, each dollar increase in the oil price generated an extra £700m for the companies in the North Sea, giving them an estimated "windfall" this year of £7bn, on top of their already "comfortable" profits, Dr Wright pointed out.