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Does The UK Subsidise Fossil Fuels?

April 24, 2022

By Paul Homewood

 

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https://notalotofpeopleknowthat.wordpress.com/2022/04/23/renewable-subsidies-have-cost-78-billion-in-last-10-years/

 

 

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There has long been a concerted effort by the green lobby to persuade the public that they are paying billions in subsidies to the nasty fossil fuel industry, particularly in the UK. The above comment exemplifies this.

He quotes the OECD, who are of course at heart a political organisation, just like their subsidiary, the IEA. The OECD simply follow their masters wishes, that is the governments who make it up. The OECD’s position on climate change is exactly the same as its member governments:

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https://read.oecd-ilibrary.org/environment/inventory-of-estimated-budgetary-support-and-tax-expenditures-for-fossil-fuels-2013_9789264187610-en#page17

 

As Rafal comments, the OECD regard “tax reliefs” as “subsidies”. They are no such thing, and the OECD is deliberately misleading people in claiming so.

If we follow Rafal’s second link, we find several items listed as “Fossil Fuel Support” for the UK in 2020:

  • Red Diesel – £2.1bn
  • Tied Oils – £1.2bn
  • Tax Reliefs for Decommissioning – £0.6bn
  • Tax Reliefs for Capital Investment – £1.5bn

Tax Reliefs, however, are not subsidies in any shape or form. All companies pay Corporation Tax on profits, and profits are of course INCOME minus EXPENDITURE. Both Capital Investment and Decommissioning Costs are legitimate expenses to book against profit. The Tax Reliefs referred to merely determine when when these expenses can be offset.

The OECD themselves give these definitions on the table listed:

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In short then, oil companies cannot offset decommissioning costs until they are actually incurred, by which time of course production has stopped and there is no income to offset them against. Therefore they are allowed to offset them against tax already paid. Over the life of the asset, the correct amount of tax is paid. This arrangement is actually detrimental to the oil companies, because they have overpaid tax in previous years. (The government is naturally delighted, as it has extra tax revenue – which is probably why they set the system up this way!) A normal accounting policy would be to provide for these decommissioning costs each year during the life of the asset.

It is a similar situation with capital allowances. Companies can offset the full capital costs upfront, rather than on a depreciation write-down basis. Again, the correct amount of tax is paid over the life of the asset.

The other two item listed have nothing to do with subsidising fossil fuels either:

 

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If charging a lower level of fuel duty on red diesel is a subsidy (which it is not), it is a subsidy for farmers, not fossil fuels. Similarly the Tied Oils scheme merely exempts industry from fuel duties, if the oil is not used as a fuel.

Rafal (and the OECD) conveniently ignore the fact that UK oil and gas producers pay tax at a much higher rate than the rest of UK industry. In particular:

  • They pay Corporation Tax at a rate of 30%, instead of the standard rate of 19%.
  • They also have to pay a Supplementary Charge of 10% on profits

Effectively then they are paying twice the tax rate. Hardly surprising then that the OBR is forecasting a bumper £8.8bn tax revenue from North Sea Oil this year:

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https://obr.uk/efo/economic-and-fiscal-outlook-march-2022/

 

Finally, let’s check Rafal’s first link from the OECD:

 

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https://read.oecd-ilibrary.org/environment/inventory-of-estimated-budgetary-support-and-tax-expenditures-for-fossil-fuels-2013_9789264187610-en#page370

Virtually all of their so-called fossil-fuel support comes from the reduced rate of VAT on electricity and gas.

There is no god-given rule that says all goods and services must be charged at 20% VAT, and even the reduced rate of 5% is still a tax. It is absurd to claim that this is a subsidy.

After all, food is zero-rated for VAT, but does anybody claim that food is subsidised? Of course not.

But if we go down the route of the OECD argument, we can only conclude that fuel duties should not be imposed, as other goods are not taxed in this way. Given that the Exchequer pulls in nearly £30bn a year from this tax, it far outweighs anything else claimed as subsidies by the OECD.

29 Comments
  1. Gamecock permalink
    April 24, 2022 11:37 am

    It’s Greeny jargon. They display their ignorance of taxes and accounting, but it’s good enough for their followers.

    • Adam Gallon permalink
      April 24, 2022 12:35 pm

      They know full well what taxes & accountancy practices are, it’s just that they don’t suit their agenda.

      • April 24, 2022 4:18 pm

        The Greens are all propaganda. They are more than happy to lie. In fact lying is their Modus Operandi.

    • Captain Flint permalink
      April 24, 2022 7:23 pm

      They are basically quite thick. Most of them can’t seem even to work a calculator.

  2. magesox permalink
    April 24, 2022 11:39 am

    Perfect evisceration of a very stupid and ignorant argument Paul.
    I can imagine, on reading “fossil fuel subsidy” arguments such as those highlighted, countless people working in the beleaguered oil and gas industry saying out loud “I only wish…”, “chance would be a fine thing” and so on. The reality is the U.K. oil and gas production industry is, and always has been, extremely highly taxed – far more so than any other industry I can think of and certainly in a different league to the massively subsidised renewables industry.

    • ThinkingScientist permalink
      April 24, 2022 8:21 pm

      Us here in the oil and gas industry are happy for government to set a tax framework.

      The oil and gas business is fully international. Governments know they have to compete with other fiscal regimes, so if they are too punitive oil and gas comanies will invest elsewhere.

      From my time working in oil and gas companies the UK was often regarded as high commercial risk for investment because the tax regime was often changed at short notice. Oil companies want long term stability because field life is typically measured in decades.

      By comparison, Libya (Gaddafi days) was considered as low commercial risk because once a contract was signed the terms were fixed forever.

    • Matt Dalby permalink
      April 25, 2022 10:18 pm

      What’s going to happen in the near future when a lot of wind/solar farms reach the end of their (un)productive life and need decommissioning? Are the operating companies going to be allowed to offset these costs against tax? You can bet that if they can the green lobby won’t class this as a subsidy.

  3. Harry Passfield permalink
    April 24, 2022 11:41 am

    The grammar pedant in me was alerted to what I thought was going to be an illiterate rant from Rafal (who he?) when he used ‘too’ for ‘to’.
    Anyway, claiming a lower tax rate is a subsidy/benefit is just as deceitful as the government saying at every Budget that they are not raising fuel duty (again!) – and we are meant to be so grateful for the benefit!

  4. April 24, 2022 11:48 am

    I investigated the UK’s “obscene fossil fuel subsidies” last year at Cliscep: https://cliscep.com/2021/07/24/the-uks-obscene-fossil-fuel-subsidies/

    The inevitable conclusion of actually bothering to look into this subject as Paul has done here or as I did last year, is that people claiming fossil fuels are subsidised in the UK are either deliberately lying OR know nothing about the subject. Being ignorant of the facts is forgivable for some guy on the street, as long as they don’t make unsupportable claims. But organisations like the OECD, like BloombergNEF & the Guardian have no excuse for not bothering to check the facts.

    It’s a pity we don’t judge such organisations by their dishonesty – which as Paul has shown here, is very easy to prove.

  5. April 24, 2022 12:41 pm

    “Does The UK Subsidise Fossil Fuels?”

    Our parliamentary record shows that on 10th Dec 2021, the Green’s sole MP Caroline Lucas:

    “To ask the Chancellor of the Exchequer, if he will make it his policy to conduct an assessment of (a) the UK’s support for fossil fuels through the tax system ….”

    She was informed:

    “The UK does not give any subsidies to fossil fuels, and follows the approach of the International Energy Agency, which defines fossil fuel subsidies as measures that reduce the effective price of fossil fuels below world market prices.”

    https://questions-statements.parliament.uk/written-questions/detail/2021-12-10/90854

    • Dave Gardner permalink
      April 25, 2022 12:08 pm

      Even the International Energy Agency’s definition of a fossil fuel subsidy is a bit generous towards the interests of the Green lobby. The world market price is effectively a “recommended retail price” and could be way above the break-even price for extracting the fossil fuel.

      I remember in the 1970s there was talk in the tabloid newspapers of the UK getting cheap petrol as a result of North Sea oil, because it was seen as one of the routine perks of being an oil producing country that you got cheap oil in your own country, as the Arab countries did. The PM at the time (Jim Callaghan I think) was asked if we would be getting cheap oil in the UK in a TV interview, and he replied that investors were only prepared to invest in the development of North Sea oilfields if the UK paid the world market price.

  6. Realist permalink
    April 24, 2022 1:05 pm

    There are ZERO subsidies for fossil fuels anywhere in Europe. They get hammered with extortionate taxes, particularly at point of sale.

  7. It doesn't add up... permalink
    April 24, 2022 1:08 pm

    Anyone not paying 50% income tax on all their income is being subsidised according to the OECD.

    • Phoenix44 permalink
      April 25, 2022 7:22 am

      Which of course they are! The top 10% of taxpayers subsidise the health, education, police etc of the rest.

  8. It doesn't add up... permalink
    April 24, 2022 1:44 pm

    It’s worth pointing out that a wind farm will get capital allowances to defray the cost of its investment, and that they may also offset interest costs. The oil taxation regime used not to allow a specific interest cost deduction. Also, whe the time comes, wind farms will doubtless be able to claim decommissioning and site restitution costs against previous tax paid., although with lower tax rates the rebates will be less.

  9. April 24, 2022 1:54 pm

    Reblogged this on WeatherAction News and commented:

    UK oil and gas producers pay tax at a much higher rate than the rest of UK industry. In particular:

    They pay Corporation Tax at a rate of 30%, instead of the standard rate of 19%.

    They also have to pay a Supplementary Charge of 10% on profits

    “But it’s a subsi..reeeeeeee”

  10. Gordon Hughes permalink
    April 24, 2022 1:58 pm

    This nonsense has been around for some time. The IMF goes further and counts as “subsidies” taxes that they (the IMF authors of whom Ian Parry is the prime culprit) think ought to have been imposed on fossil fuels due to the externalities caused by producing or using them. Of course, the argument is never applied in a symmetrical manner to other forms of energy production – i.e. to the noise created or visual disturbance caused by wind turbines or by the minerals used by producing solar panels.

    It is intellectually disgraceful of both the OECD and the IMF to give credence to such notions because they have substantial programs of research on the design of efficient tax systems which many of the their claims directly contradict. For example, reduced or zero taxation of diesel and other fuels used as inputs to production are exactly consistent with the general notion (eg with VAT) that taxes should fall on outputs not inputs. Whenever proper calculations are carried out the excise duties on most fuels exceed any efficient level of taxation required to internalise external effects – e.g. congestion for road use. There is a classic study by Kenneth Small which showed that efficient taxes on transport fuel in Los Angeles would only be a fraction of actual taxes and would fall almost entirely on buses and heavy lorries.

    Of course most competent OECD and IMF staff know this but go along with producing stuff of this kind because governments are unwilling to risk the flak that they would get if they were to put it out themselves. The OECD in particular is a hopelessly compromised organisation because it has no assured funding.

    • It doesn't add up... permalink
      April 24, 2022 3:59 pm

      Much of the OECD funding is assured under the agreements that set it up. Ambassadors to the OECD do get to vote on its overall budget every couple of years. There are elements of their work that are financed only by some countries on a voluntary basis.

      https://www.oecd.org/about/budget/

    • Phoenix44 permalink
      April 25, 2022 7:27 am

      And externalities only make sense as a concept if there are groups who suffer disproportionately from others consumption. The more clever Greens know this, which isxehy we get claims about climate change disproportionately affecting those in poorer countries. If we all use fossil fuels and all suffer from climate change because of it, there’s no chargeable externality.

  11. Martin Brumby permalink
    April 24, 2022 3:11 pm

    I’m cheesed off reading this zombie lie about “fossil fuel subsidy”, year after weary year, although always expertly deconstructed by Paul

    The barefaced liars don’t mention that ruinables also get this bogus “subsidy” in addition to the long list of genuine (if often well disguised) massive subsidies that Paul accurately lists, again year after year.

    But the explanation is probably that these venal retards have to take their sandals off if they want to count to twenty and, more importantly, they know that facts, like mathematics, is actually racist, indeed white-supremacist, inherently fascist nonsense.

    Even more important is that they FEEL that fossil fuels are heavily subsidised and that this is preventing the UK from achieving their Marxist Zero Carbon nirvana as early as this Summer solstice (if not sooner).

    No good moaning. After all our Beloved Leader Boris no doubt agrees, hence his frequent claim (including in the last few days) that Ruinables are cheaper than any other form of energy. And a large majority of the gormless 649 other “elected MPs” agree with him.

    Just do what you’re told. Follow The Science. Nirvana awaits. What could go wrong?

  12. Brian Smith permalink
    April 24, 2022 3:21 pm

    The Left has long argued that anything not taxed is subsidised. There is nothing new here in this example of IMF/OECD dishonesty.

    As far as leftist thinking goes, every single item of income should be taxed at 100% with the government giving back in benefits what it thinks you need (or deserve).

    And let’s never forget just how twisted this thinking can get as epitomised by Advanced Corporation Tax or ACT. The craziest way of taxing something before it has been recorded known to man.

    If you really want to go down the tax rabbit hole, read anything by Richard Murphy.

  13. Phoenix44 permalink
    April 25, 2022 7:30 am

    They simply conflate price and tax, which are two entirely separate components. A subsidy uses taxes to reduce prices.

  14. cookers52 permalink
    April 25, 2022 8:38 am

    I admire your resolve on actually reading this c**p, I gave up half way through the summary.

    The OECD summary says quite clearly that their definition of fossil fuel subsidy might be a difficult concept for some to understand. I didn’t understand, thought it was illogical, so stopped reading at that point.

    At least a fossil fuel energy source supplies its Energy rating 24/7, so perhaps when renewable energy can do this, they can have the same type of fiscal support.

  15. Mikehig permalink
    April 25, 2022 8:52 am

    Paul,
    You point out that the Exchequer is expecting a bonus revenue year from taxes on the oil industry. Linking with your other post about renewables’ subsidies over the past 10 years, it would be interesting to see the equivalent oil and gas tax income for that period.
    I wouldn’t be surprised if the total is greater than the renewables’ subsidies over the same period. That prompts the obvious headline: “Oil and Gas taxes subsidise renewables”.

  16. cookers52 permalink
    April 25, 2022 11:26 am

    Fossil fuels should be subsidised as they deliver rated power 24/7 when you need it.

    Renewables should be required to deliver rated power 24/7, it is up to the suppliers of Renewables to work out how to do it. They get loads of subsidy from consumers so there is no excuse, but they just pocket this windfall. Politicians just let them do it, a cynical person might think this is just a financial scam.

  17. Brian Smith permalink
    April 25, 2022 12:12 pm

    The favourite – or most often dishonestly quoted – complaint of the Green lobby is that airlines are subsidised because the US, UK and other governments don’t tax their fuel.

    Aside from being a straight out lie – choosing not to tax something isn’t the same as subsidising it – the eco-loons refuse to recognise the simple logic behind the tax and duty decisions. Aeroplanes move around. Start taxing fuel and they’ll all fill up where the taxes and duties are lowest.

    So governments, recognising this even if the Greens refuse to, introduced taxes on (travel) insurance and airline tickets. No other form of travel asks that you a pay a tax to use it.

    You would have thought these measures were enough to satisfy the environmentalists but, no, they don’t. And that’s because the underlying force driving the climate terrorists isn’t care for the environment, climate change, global warming etc.

    No, it’s hatred of prosperity, of capitalism, of people being able to afford to travel. That’s what gets up their noses.

    And that’s what they want to stop.

    • Realist permalink
      April 25, 2022 1:09 pm

      What about the extortionate taxes on petrol and diesel and road tax? It wouldn’t be so bad if all of these were actually used to maintain the roads instead of disappearing into the black hole of public spending.

      >>no other form of travel asks to pay tax to use it

      The scary part is that the eco-terrorists hate mobility for everybody except themselves.

  18. robertliddell1 permalink
    April 25, 2022 1:42 pm

    I’ve so often tried to explain to greeny friends that tax relief on business expenses isn’t a subsidy, but it’s difficult to get it through

  19. EppingBlogger permalink
    April 26, 2022 9:02 pm

    Is there any requiremnnt for “renewable energy” owners and operators to provide flor the cost of removing their structures and safely disposing of the equipment? The amount of concrete and steel buried in the landscale is huge, the volume of non-recyclable turbine blades is vast and the solar panels contain some very very unpleasant chemicals.

    If provisions are not being made the costs are understated and the dividend distributions are excessive.

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