Financial Times: Brown in raid on oil industry: “Gordon Brown on Monday imposed a £3bn-a-year tax increase on oil company profits from North Sea oil fields…”: Tuesday 6 December 2005
By Chris Giles and James Blitz
Gordon Brown on Monday imposed a £3bn-a-year tax increase on oil company profits from North Sea oil fields and other corporate tax measures to shore up the public finances in what he described as “this, the toughest and most challenging year for the economy”.
Delivering his ninth pre-Budget report, the chancellor was forced to concede that the economy would fall far short of his previous growth forecasts for 2005 and 2006 and that public borrowing would again be higher than he had hoped.
Mr Brown’s allies argued that – for all the difficulties which the economy is going through at present – the outlook come 2009, when he expects to be leading Labour into the next election, will be better. And he appears to hoping that the public will reward him for taking difficult decisions and for steering the economy though a difficult spell without a recession.
However, George Osborne, shadow chancellor, said: “This is a tragic story of a chancellor who has now been forced to wait so long to go to Number 10, that his reputation in charge of Number 11 is crumbling.”
The chancellor increased the total corporation tax rate on North Sea oil profits from 40 to 50 per cent, sparking fury in the industry by raising an extra £2.3bn annually for the government coffers.
Malcolm Webb, chief executive of the UK’s Offshore Operators Association, said: “It is almost beyond comprehension that the government has failed to grasp the vulnerability of the industry’s future in the UK. It will deter investment in new fields and make older fields less attractive for increased recovery.”
Companies in other sectors will be hit by a clampdown on tax avoidance schemes to the tune of more than £700m a year.
Unlike recent Budgets, there were few beneficiaries in the pre-Budget report because the chancellor needed the money to improve the outlook for the public finances. Fuel duties were frozen again in 2005-06, costing the exchequer £600m, and Mr Brown announced that the £200 a year winter fuel payment would continue in perpetuity.
However, the Treasury abandoned its efforts to recover the billions of pounds it has overpaid in its tax credits scheme. From April, HM Revenue and Customs will not pursue families for overpayment unless their income has risen by over £25,000 in any year.
The change amounted to a U-turn on Mr Brown’s flagship tax credits schemes. In future, the awards will be fixed for the vast majority of recipients, just as they were with Family Credit.
Mr Brown’s economic forecasts came under renewed fire last night. He predicted growth of 1.75 per cent this year and 2 to 2.5 per cent next year, in line with independent forecasts. But his more distant projections raised eyebrows, since they rely upon the assumption of a huge amount of spare capacity in the economy next year.
Peter Spencer, of the Ernst & Young Item Club, said: “the underpinning of the forecasts is simply not credible; he is still in denial over the public finances.”
The chancellor, who in July changed his assessment of when the economic cycle started, also moved back the date he thought it would end by three years, to 2008-09. Only with these adjustments could he claim to meet his golden rule of borrowing only to invest over the economic cycle.
Robert Chote, director of the Institute for Fiscal Studies, criticised the decision: “These fortuitously timed revisions strengthen the case for asking an independent body to date the cycle.”
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