Sudden lurches in tax policy just make life harder for businesses and deprive measures of vital oversight and consultation
Six weeks ago, George Osborne picked a fight with gas companies. Yesterday, it escalated several notches – and is likely to turn really nasty before the end of summer. The chancellor will not emerge unscathed from this battle.
Ever since his March budget, Mr Osborne has come under attack from energy businesses furious at his imposition of a £2bn windfall tax on North Sea profits. Shell has estimated that the hike will cost it about $600m; Chevron and BP have complained too. Representatives from the oil and gas industry have been assiduously lobbying ministers and the press. But yesterday, things moved beyond whining and whispers. The company that owns British Gas, Centrica, announced it would close down Britain's biggest gas field, in Morecambe Bay, for routine maintenance – and that production might not be restarted. Centrica claims that the rise in tax on North Sea profits, to 32% from 12%, means that reopening the field may be uneconomical. It estimates that its older South Morecambe field is taxed at 81p for every pound brought in. Hostilities are unlikely to stop there: representatives from the oil and gas industry give evidence to the energy select committee this Wednesday and will in all probability attack both the tax rise and energy secretary, Chris Huhne – just before he turns up to speak to the panel of MPs. And over the longer run, industry observers forecast that other offshore explorers will also mothball their facilities.
Chancellors should generally avoid launching big tax changes overnight. Sudden lurches in tax policy just make life harder for businesses and deprive measures of vital oversight and consultation. This isn't just this paper's view, but apparently also that of Mr Osborne, who in 2007 blasted Gordon Brown for a "short-term focus on squeezing the maximum amount of revenue" out of the North Sea and so chasing away private investment. Now in No 11, the Conservative chancellor has learned what his predecessors also knew: that taxes on "profiteering" energy companies and highly paid bankers are the most politically acceptable revenue raisers. While it may be good politics, it also looks hypocritical. Nor does the government's appointment last December of Centrica boss Sam Laidlaw to a non-executive directorship in Whitehall look so clever.
On North Sea tax, Mr Osborne and other ministers do not have a totally watertight case. That said, companies are obliged to pay their tax bills even when they are sharply higher. After all, if a family decided to send back its gas bill because it was far higher than the last one, British Gas has the option to come down on them like a ton of bricks. Exactly the same principle applies here.