OBR massively revises forecast downwards
Ministers facing £129 billion North Sea tax blow
Shocking new forecasts for production and prices will put pressure on both the Westminster and Holyrood governments to tackle sharply declining tax income.
In just 12 months the independent Office for Budget Responsibility has lowered its projected receipts until 2041 by £34.5 billion to just £2.1bn, and by £129bn since it made its first forecast in 2011.
It says long-term projections for North Sea revenues have been revised lower since last year and are “close to or below zero in many years”.
Revenues are expected to average just 0.004% of GDP between 2020-21 and 2040-41, a fraction of the already low level recorded in 2014-15.
It says the £34.5bn of lost revenue is a result of the slump in the oil price, lower production and the freezes on tax announced in the Autumn Statement and Budget, which include: a cut in the supplementary charge from 32% to 30% and then to 20%, a cut in the rate of petroleum revenue tax by 15% and the implementation of new investment and field allowances.
The OBR says: “North Sea revenues are the most volatile revenue stream in the UK public finances and forecasting them over even short horizons is difficult.
“Our medium-term forecasts have been overoptimistic in recent years, mostly because production has fallen short of expectations.
“Over the longer term, we can be more confident that oil and gas receipts are on a declining trend as production from the UK continental shelf moves towards its ultimately recoverable capacity. But the same factors that make receipts volatile on a year-to-year basis make it very hard to predict the pace of the decline with any confidence.
“But even an assumption of higher production and oil prices reaching around $210 a barrel leaves revenues as a share of GDP at a fraction of the levels seen in the past 10 years. That said, the potential exploitation of shale gas represents a significant – but as yet unquantifiable – upside risk.”