Falling North Sea oil revenue 'to hit government finances'
- 10 July 2014
- From the section Business
Dwindling revenue from North Sea oil will increase the pressure on government finances over the coming decades, according to the Office for Budget Responsibility (OBR).
The OBR has cut its estimate of tax income from the North Sea between 2020 and 2041 by a quarter, to £40bn.
The fall is down to lower production forecasts over the next few years.
But its assessment was dismissed as "stuff and nonsense" by Scottish First Minister Alex Salmond.
The Scottish government has argued that the OBR figures are based on a "very low estimate of future total production", which resulted in them being more pessimistic than other estimates, including those produced by industry body Oil and Gas UK.
The OBR was created by George Osborne in 2010 in one of his first acts as chancellor to provide independent economic forecasts and analysis of the UK's public finances.
Its latest fiscal sustainability report predicted that UK government debt will peak in 2015-16, a year earlier than expected, at 78.7% of GDP.
This is 6.9 percentage points lower than previously forecast.
The latest figures also showed total debt at £1.273bn, or 76.1% of GDP. This is the equivalent of £48,200 per household.
The OBR warned that governments will have to raise taxes or implement further spending cuts in the coming decades, mainly because, as life expectancy grows, the cost of health, social care and the state pension will increase.
Lower revenue from taxes on North Sea oil producers will exacerbate the problem, along with falling income from road taxes as cars become more efficient, it added.
OBR chairman Robert Chote said the body was now forecasting revenues of £61.6bn from the North Sea between 2013/14 and 2040/41 - down from £82.2 billion.
If production levels are low, oil and gas receipts could be only £40bn for the period 2018/19 to 2040/41, he said.
But with higher production levels and oil prices, these could be as high as £81.5bn, Mr Chote added.
In May, the Scottish government lowered its own estimates of the country's oil and gas tax revenues over the next five years, although its figures were still higher than those of the OBR.
The Scottish government's figures put the likely total between £2.9bn and £7.8bn in 2016/17, which could be the first full year of independence under its timetable.
Last year, it estimated the sum would be between £4.2bn and £10.7bn for the same period.
And its central prediction suggested that the country could benefit from £34.3bn of North Sea oil and gas and revenues over the next five years - equal to almost £7bn a year.
Speaking to BBC Scotland, the first minister delivered a scathing response to the OBR assessment, describing it as "stuff and nonsense".
Asked about the potential impact of the OBR report on the Scottish independence debate, Mr Salmond said: "The OBR are suggesting 10 billion barrels of oil and gas remaining. Oil and Gas UK say up to 24 billion barrels. Sir Ian Wood, who did the report just last year, says up to 24 billion barrels.
"The Professor of Geology at Aberdeen University says it is more like over 30 billion barrels.
"Now, all of these people know infinitely more about the extent of the reserves remaining in the North Sea than the Office of Budget Responsibility in London does. I think they should start talking to the experts."
But a spokesman for the UK Treasury said it was becoming "harder and more expensive" to extract North Sea oil and gas, which he said was reflected in the OBR's decision to downgrade expected tax receipts.
The spokesman added: "The broad and diverse UK tax base means we are able to support the oil and gas industry, for example through targeted tax reliefs for oil and gas fields that are technically or commercially challenging.
"A separate Scotland would be more reliant on income from the North Sea so is unlikely to be able to provide the same level of support, which comes at a cost in the short-term, and would therefore miss out on the long-term economic potential it has to offer."