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Cutting the throat of the black gold goose

By Andy Mayer
March 31st, 2011 at 9:02 am | 2 Comments | Posted in Economics, Energy

Hammer of the oil companies George Osborne is a greater environmentalist than economist. Or is he?

The impact of the his 12% hike in the North Sea supplementary charge; on top of two 10% rises by Gordon Brown last decade, has seen a roll call of firms suspending or scrapping major investment deals in British waters.

City AM has been following the stories over the last week, the most significant of which was a £10bn investment in Mariner and Bressay by Statoil.

The short term impacts on the UK tax take are unclear. Existing fields facing marginal tax rates of 62-81% will continue to produce. In the short run the world price of oil is more important than investment.

In the long run the Chancellor will be testing to destruction… again… the problem that high taxes don’t work. Investors don’t tend to volunteer to make their money work more for the Government than them.

A view strongly expressed previously by the Scottish Liberal Democrats, who campaigned vigorously against Gordon Brown’s looting. They may be wondering why a Scottish Liberal Democrat Chief Secretary to the Treasury didn’t stop this, knowing has he does, that when the rate, last doubled investment in the North Sea fell 25%.

But isn’t this good for low carbon energy?

The answer is no.

First oil and gas companies are international. Investment moves around the world looking for the best returns. That movement is limited by cost and national monopolies, but as some opportunities become more expensive, others such as oil sands and deep water drilling become more attractive. No carbon is saved, it just gets drilled elsewhere. Some of those alternatives produce more CO2, in production, than drilling the North Sea.

New opportunities in the North Sea are already expensive due to natural considerations; the hostile climate West of Shetland for example. And in decline. Creating fiscal barriers on top of that, whilst Barack Obama for example is offering tax breaks, is uncompetitive.

No low carbon technologies are yet in a cost effective position to displace oil and gas as primary fuel sources for transport and electricity generation. They will get there, one day, but to do so require investment. That investment in turn, whether public or private, depends on economic growth.

High taxes kill growth. Efficient investment requires exploiting the skills and advantages you already have. Offshore wind for example benefits directly from offshore oil and gas engineering. For green energy to be the future we need energy companies to be successful today.

In the medium term the likely impact of the Osborne tax will be less tax revenue. That could be masked if global oil prices continue to rise, but there will still be a dead-weight loss. If prices fall, it could be dramatic. Gas prices for example are already much lower than oil.

It would be better if oil and gas were treated on a level playing field with other businesses, with special taxes reserved for concrete market failures like mitigating carbon, not revenue raising.

Where hypothecation is useful perhaps it should be towards investment in future energy sources, not reducing taxes at the pump or other pet projects. The Treasury and public sector should be taking the hit on keeping down the cost of living, not the providers of jobs and growth.

The current North Sea Fiscal regime is over complex. The erratic behaviour of successive Chancellors can give industry no confidence in future stability. That loss of confidence, in some respects, is even more worrying than the rise. This is one piece of populism that has backfired badly. The Government should think again.


Rally Against Debt

By Andy Mayer
March 30th, 2011 at 2:44 pm | 13 Comments | Posted in Debt

Protest marches are rarely a very effective way to change public opinion. Most look self-serving, some get hi-jacked by violent minorities. They act more as rallying points for the already convinced rather than ‘could be persuaded’.

With tongue firmly in cheek to make a serious point then, opponents of ever larger government are organising a “civilised and well mannered” rally against “pointless government initiatives” on 14th May 2011.

It is unlikely the rally will attract the quarter million claimed by the TUC. Cuts make a small number of people very angry, debt reduction benefits everyone largely invisibly by reducing crowding out and other barriers to growth. The balance of emotion is in the other camp.

It should though attract a good crowd and is a thoroughly recommended day-out for fans of liberty and a smaller state. Liberal Vision will be there.

Mansion Tax Nouveau

By Andy Mayer
March 29th, 2011 at 10:37 am | 2 Comments | Posted in Liberal Democrats, Tax

Our party at times, is rather like the French wine industry, a purveyor of great things, sometimes the best in the world, but rather loathe to change our traditional bad habits.

The mansion tax in many forms is now vintage bad policy about which we have written previously. The party in principle supports simple fair taxes, we have a history of supporting land taxation. The mansion tax is neither.

Annual percentile taxes on estimated property values are hard to calculate, distort markets, have no sensible ‘fair’ threshold. They would be widely avoided.

That Nick Clegg is now talking (£) about ditching the vintage for something bubbly is cheering, but his options so far are rather flat, and abstinance from token tax innovation might be better.

The worst option is ‘reforming’ i.e. increasing stamp duty.

Stamp Duty on main homes has got to go. Whilst it is reasonable to tax individuals and businesses for capital gain, consistent with other assets; taxing the full value of the property on the buyer, not the seller is entirely unfair, and a huge market distortion.  

Reforming Stamp Duty would involve replacing it with a 5-10% level of Capital Gains Tax across the board, zero-rated at the same level Stamp Duty is zero-rated. There is no need to have multiple progressive bands. There is certainly no need to introduce some super rate on very high property values. That very rich people want to live and spend their money in Britian is a good thing not a social problem.

CGT is already applied to second homes and business transactions. Ditching Stamp Duty would then be a tax simplification.

Introducing new Council Tax bands is an old idea of unclear purpose. I happen to like Council Tax. It’s the nearest thing we’ve got to a fair land tax. I might even concede new bands could be helpful in some areas. But this should be a local decision and introduced slowly, or part of a wider land tax reform.

The problem I have with it is that there is no obvious reason why larger houses should pay dramatically more than they already do for the same local services as smaller houses. Nick appears to be suggesting a local tax reform could be used to pay for a national tax deficit. I’m not sure that sits at all well with the party and coalition’s localism agenda.

If the issue is taxing monopoly ownership of land, then let’s start calling Council Tax, local land tax and apply it evenly to different land classes through one simple integrated system with busines rates. Let local areas compete with each other to attract residents and businesses through the rates they set. Too much national interference and redistribution encourages waste and entrenches poverty through public sector crowding out.

The general problem however is the positioning of this policy as a way of paying for ending the 50p income tax rate. That policy is being reviewed on the basis of complexity and revenue. If it damages growth, penalising entrepreneurship and encouraging avoidance, it will fall on its own merits.

It does not need a plan B to appease the left.

Where is the courage? …the country is calling out for Cuts…

By Angela Harbutt
March 27th, 2011 at 11:49 pm | 13 Comments | Posted in Uncategorized

Friday’s Guardian/ICM Poll shows that 35% of the nation believe the cuts are too severe… That’s down from 45% last November.. but wait there is more….

28% believe the Coalition has got it right on cuts and another 29% believe the govt should cut deeper and faster.!!!

These figures suggest that 57% of the population concur that there is only “Plan A” – to cut Government spending at least as fast as it is doing. And in so far as there might be a “Plan B”- it is to execute “Plan A” harder and faster.

This does not surprise me. …. The “Stop the War ” coalition brought out somewhere between 750,000 and 1,000,000 onto the London streets in 2003.

Less than half of that (somewhere between 250,000 and 350,000) turned out to protest about public sector cuts in London this weekend (March 2011) – and that with the full might of the trade unions behind the demonstration. Nice. Perfectly acceptable in a democracy (criminal activity aside). But hardly impressive.

The naysayers – who believe the cuts are too deep/fast are the small but highly vocal minority.

What do we make of this ? Three things spring to mind….

1.Classical Liberal groups (and I single out the IEA for particular praise here) have done a damned good job in moving public opinion on the cuts. They have tirelessly explained the facts, highlighted the consequences of the alternatives, and spoken out when they see that more should be done. They deserve much thanks.

2. The media – in particular the BBC – should be lambasted for its singular lack of balance. Do we get 2:1 ratio of voices on the BBC putting the case for the cuts, (let alone the near third that think they should go further?). Do we hell. What we hear mainly are the arguments and anecdotes from the vocal minority demanding that the cuts are lessened/slowed…. Hows about hearing more from the perspective of the majority of voters that believe the Coalition cuts are bang on or indeed SHOULD GO FURTHER.

3. Coalition apologists should be less apologetic. They are talking themselves into believing what they are doing is very dramatic and unpopular. In fact, their action is moderate at best, and to be clear, fairly popular. It’s time for the Coalition to show some bravery and  courage of its conviction.

Rent seekers seek rent

By Andy Mayer
March 26th, 2011 at 5:24 pm | Comments Off on Rent seekers seek rent | Posted in Opinion

A number of trade union activists appeared in London today to hear a speech by the Leader of their Labour party franchise.

A smaller number of affiliated militants attacked a shop, reducing the amount of tax they paid.

The franchise speaker failed to spell out a credible alternative to the Government plan.

A Government spokesperson reassured the BBC their plan did not mean sacking all public sector workers.

Everyone went home.

Nothing changed.

Great Britain is 303 years old and over £1 trillion in debt.