Wednesday, March 30, 2011

Budget for Growth: not oiling the wheels of business

A few days ago, in my comment on the Budget, your humble Devil pointed out that raising the tax on the oil companies was completely fucking stupid.
Quite simply, with fuel prices lowered, people will buy more of it—demand increases. But Osborne is going to tax the suppliers of this good, so that they produce less of it. Is the man a complete moron?

Well, that didn't take long, did it?
One of the world's biggest oil companies, Norway's Statoil, has halted work on two North Sea projects because of the huge tax hit on oil fields in the Budget.

It comes after smaller companies such as Valiant Petroleum warned that they are re-evaluating new projects, since the Chancellor increased tax by 12 percentage points to more than 62pc.

There have also been reports that oil majors have withdrawn plans to sell billions of pounds in North Sea fields nearing the end of their lives, leading to fears they will be abandoned with oil still in the ground.

Statoil, the Norwegian state-controlled company, said on Tuesday it will "pause and reflect" on the future of its Mariner and Bressay fields to the south east of Shetland.

So, what we are faced with is a decrease (however small it may be in the grand scheme of things) in the supply of oil just as the Chancellor has dropped the price of petrol.

And that drop in price is supposed to be paid for by this increased tax on North Sea oil producers. Only the tax increase will see said producers actually producing less. As Timmy says, this is a very neat demonstration of the Laffer Curve in action...
Whether this will actually lead to a decline in tax revenues overall is moot at this point: it certainly won’t lead to a reduction in short term revenues. But it will definitely lead to a reduction in the amount of oil pumped up over the decades and so is quite likely to lead to a reduction in the long term tax take.

And do note that no one is trying to dodge a tax, no one is trying to pass it on. It’s simply that the imposition of a tax has made previously viable activity now non-viable. We’re, in that long term, poorer because of the tax.

Leading to the conclusion that George Osborne is a total fuckwit because he won't raise the revenue that he expects from the producers.

On the other hand, it might be that George Osborne is, in fact, possessed of a near-fiendish Machiavellian cunning...

Because what may happen—especially with the current uncertainty in the other areas of the oil-producing world—is that these announcements are enough to put an upward pressure on the price of oil. This will then raise the price of petrol at the pump, enabling Osborne to wibble on about "greedy oil companies raping the British consumer".

Then, as the price of oil goes up, the Treasury—collecting fuel duty and VAT (a percentage of the price)—gets even more cash than they would have raked in from the 1p duty anyway. In this way, the government can rim its citizens for more cash whilst looking like the good guy.

Actually, of course, I don't think that Osborne has the intellectual nouse to pull that kind of cunning stunt—it's just that he's a stunning cunt.


Outed said...

Osborne that cunning? Probably not. Osborne giggling and clapping his graspy little paws together like a 6 year old laughing at a fart joke after some clever child from the Treasury wonk office has explained it to him? Yes that's far more likely.

FlipC said...

Maybe he's a secret Greenie; increasing the price by subterfuge?

As an aside did everyone note the distributors dropping their price by exactly 1p despite the end figure being duty+VAT. That means they made an extra penny for every five litres sold compared to the 'higher' price pre-drop.

Anonymous said...

Actually it seems to me more likely that he is _that_ cunning than _that_ stupid. If he were _that_ stupid I don't see that he would be chancellor of the exchequer, although recent holders of that post may suggest I'm wrong.


He is a cunt though either way

Anonymous said...

He is utterly stupid.

He apparently believes himself to be a 'classical liberal' - clearly he has no idea what this entails, has never read any Say, or perused Hazlitt's economics in one lesson, or considered the class struggle between the parasite state and the wealth generating classes. In short he is showing his complete ignorance by talking out of his arse on the very basic philosophy of political economics.

Or perhaps is sincere, and may also believe himself to be a Masai chief - and perhaps hold the statue of liberty to be made of lime jelly.

Gordo said...

What is a Norwegian state oil company doing developing fields in the UK sector? Where does the profit go?

For the record Statoil pay their Norwegian sector employees far more than their British sector ones!

Anonymous said...

The price of oil is set on the open market. An increase in tax will only erode profits for said oil companies. If this has the effect of their lowering production then it will effect the general price of oil. However, given that the price of oil is so high, and likely to head higher, the oil companies are making a fortune anyway. This, coupled with the fact that new oil fields are few and far between these days, means it is highly unlikely that the oil companies will in fact cut supply. So in effect what the chancellor has done has provided a budget neutral boost to the UK economy.

Am I wrong?

Anonymous said...

Osborne=Brownite fuckwit.
I work in this area and in broad terms all he's done is put the brakes on growth until the oil price goes up enough to offset his tax rise (roughly 12% over current). So again in broad terms he's fucked over growth until there is another hike in the pain threshold at the pumps, with all the enusing contraction in dependent sectors in the meantime.
We went through all this before when other twat gordo did it.