Build up to the Pre-Budget Report 2009
Oil comes to the rescue?
Last year, tax paid by oil and gas companies on their profits contributed £12.9 billion - the highest level for many years - due to the oil price spike in 2008. This huge total definitely helped arrest the drop in corporation tax receipts, as banks stopped making profits.
This year, the Chancellor forecast that North Sea receipts would drop back to £6.9 billion, based on the oil price at the time, of $46.7 per barrel. However, a month later, the oil price started to climb and is now about $79 per barrel. The average for the year is around $70. Of course, oil is priced in dollars, but tax is paid in pounds. The exchange rate in April was something like $1.45=£1; like oil, it started to rise in May and has hovered around $1.65.
The net result is that the sterling oil price is about 30% higher than the Budget forecast.
Not all North Sea production is oil - and gas is priced quite differently. We think it's still likely to mean an extra £2 billion in the coffers this year, paid in October 2009 and January and April 2010.