Insight
The quest for a new UK North Sea fiscal system
*Please note that this report only includes an Excel data file if this is indicated in "What's included" below
Report summary
Historically, UK governments have responded to price volatility by altering tax rates and allowances as they perceive the North Sea entering a new economic cycle. Terms have frequently changed overnight and been applied to all production – not just new projects. Consequently, the UK is viewed as having one of the most unstable petroleum fiscal systems in the world. The new UK government also plans to ‘work with the industry and others to develop and implement a successor regime for responding to price shocks after [the EPL] ceases.’ But, establishing a new fiscal system, equitable to both government and industry will be very challenging. There is no magic fiscal wand for the Chancellor to wave. There are many alternatives to the highly flawed EPL. The most common criteria on both sides of the debate include price responsiveness, predictability, fairness, simplicity and transparency. Our report summarises the pros and cons of each of the most likely options.
Table of contents
- The key challenges for creating a new UK tax regime
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1. Defining a price ‘shock’ and its duration
- When does ‘business as usual’ turn into a windfall?
- How long does a price ‘shock’ last?
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2. Determining the appropriate government share
- What if the Supplementary Charge had been linked to oil prices?
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3. Defining price shock income
- High-price royalty (HPR): a revenue-based mechanism
- Progressive RFCT/SC: a profit-based mechanism
- 4. Dealing with oil and gas prices in a single tax system
- 5. Simplifying the current system
- What next?
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Appendix
- Glossary of UK fiscal terms
- High-price royalty illustration
Tables and charts
This report includes 17 images and tables including:
- Annual changes in oil & gas prices (1975-2024)
- UK electricity generator levy (EGL)
- England, NI & Wales personal income tax rates*
- Brent oil and NBP gas price inflation (1995-2024)
- Oil & gas share of production by top 10 producers (mmboe)
- Deriving a single weighted average tax rate, assuming a gas-only price shock
- Illustrative combined oil & gas tax rate by top 10 UK producers
- Current UK petroleum taxes
- UK fiscal options matrix
- Hypothetical hindsight progressive SC system
- Actual SC rate vs. hindsight progressive SC rate
- Hypothetical more likely progressive SC system
- Actual SC rate vs. more likely progressive SC rate
- Countries with fiscal rates linked to oil prices*
- HPR: cost / price sensitivity
- Progressive RFCT/SC: cost / price sensitivity
- HPR calculation
What's included
This report contains:
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