back to article British Gas parent to grab £500m North Sea gas tax break

The government has announced a new tax relief for operators of shallow-water gas fields in the UK Continental Shelf, ahead of its planned long-term gas strategy to be published this autumn. Its new £500m field allowance would, the government said, secure future investment in North Sea gas and create jobs. Centrica, the parent …

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Anonymous Coward

Let me see if I understand this.

So you, a commercial enterprise, fish gas out of the sea, a non-infinite, shared resource. Of course, getting it out isn't exactly free, but you sell the gas to punters, and make a nice profit on that. And on top of that, you aren't just not paying for that shared resource you're slowly depleting, you're getting tax breaks. Is that about right?

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Re: Let me see if I understand this.

All this at a time when the UK government is trying to cut carbon costs. And this is only a couple years after they removed the incentive scheme for households to put up solar panels, a green renewable energy

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Re: Let me see if I understand this.

Not sure about solar panels, but the money would have been better invested in either non-weapons nuclear power research, or for a "quick return" on improving the insulation of social housing, hospitals, and schools.

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Re: Let me see if I understand this.

Is that right? No, it isn't.

Greens may want to present this as a subsidy, but as the article clearly says, it is a reduction in the amount of extra taxes they would otherwise have paid on income from extraction - taxes that no-one else is subject to.

Now, you might believe that paying 25% income tax is equivalent to a government subsidy to you of 75%, but the rest of us believe that it amounts to a 25% tax, not a 75% subsidy. It depends on whether you think all your money belongs to the state or not.

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Re: taxes that no-one else is subject to

But the reason that no-one else pays the Supplementary Charge is that no-one else is permitted to access their share of the gas reserves. Everyone else has had their gas given to Centrica et al. and must buy it back.

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@Mike Street Re: Let me see if I understand this.

"Greens may want to present this as a subsidy, but as the article clearly says, it is a reduction in the amount of extra taxes they would otherwise have paid on income from extraction"

It has nothing to do with Greens, or any type of environmental, political or other persuasion - it is a subsidy in as far as it is an assistance, a help, to the sector (which is what a subsidy is). Whether that is good, or bad, thing is entirely another matter.

"Now, you might believe that paying 25% income tax is equivalent to a government subsidy to you of 75%, but the rest of us believe that it amounts to a 25% tax, not a 75% subsidy. It depends on whether you think all your money belongs to the state or not."

That's not what is happpening here. Here there is a tax levy - and a reduction (or subsidy) is being make on that fiscal requirement, e.g. like being part of a group liable for 25% income tax but you receiving a 10% allowance or subsidy due to certain circumstances - the comparison group is not that of those pay zero tax (and hence you being now a 15% tax payer) but the group you are part of (and so you have a subsidy of 10%). Whether you believe that the tax is a fair rate is, again, nothing to do with whether you receiving assistance is a subsidy or not against the norm of your taxation group.

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Re: @Mike Street Let me see if I understand this.

So if your income tax was 45% and everyone else paid 25%, if your tax was reduced to 35%, would you call it a subsidy?

No, you wouldn't.

And Greens are trying to categories these types of arrangements as 'subsidies', because their favourite technologies, like the perfectly useless wind generation, actually do get subsidies - the feed-in tariff is the only thing that makes some of them economic.

That is a subsidy, this isn't.

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Re: Let me see if I understand this.

Would you prefer we buy all our gas from the Russians who can up the price or turn off the supply any time they feel like it?

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Re: Let me see if I understand this.@wowfood

Yyou're evidently happy that the largely lower income masses are paying higher power prices so that well off middle class eco-loons can have some eco-bling solar PV, or large companies can profit handsomely from roof rental schemes. Ever thought of yourself as friend of the trendy middle classes and fat cat energy companies?

Regarding your concerns about carbon, developing UK gas reserves is substantially better than importing LNG, where the losses from refrigerating and reheating the gas for transport amount to around 40% of the embodied energy.

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Re: Let me see if I understand this.@Irongut

"Would you prefer we buy all our gas from the Russians who can up the price or turn off the supply any time they feel like it?"

Most of our gas imports come from Norway, but we've also got LNG import terminals and can and do bring the gas in from Qatar, Indonesia. Admittedly that's not efficient, and the price has been against LNG for a few months, but it is a useful alternative to Russia's grip on Germany - who aren't doing so badly, are they? And future sources include the US and Canada, amongst others, even assuming our politicians manage to crush UK shale gas exploration.

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Re: taxes that no-one else is subject to @vagabondo

"Everyone else has had their gas given to Centrica et al. and must buy it back."

Why is so much tripe being spouted in this thread? Centrica weren't "given" any of "your" gas. They had to bid (along with anybody else who wanted to) for exploration rights in specific blocks. That's not a production licence, that's dead money purely in return for being allowed to go and look.

Then, if and when they find the gas, they produce and sell it at their own expense, and the UK government pockets (risk free) around 60 to 80% of the profits (plus the occasional one off and "windfall" taxes that various UK governments decide to expropriate). And, what's more, the gas companies can't offset other tax deductible items against oil & gas taxes in the way that normal corporation tax works.

Maybe you think that's too generous? You are at liberty to bid for an exploration licence, and if you win, and find gas, you can invest the billions required in production facilities. Then instead of making a profit, you can give it all to the Treasury. I'm sure they'll spend it wisely.

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Re: @Mike Street Let me see if I understand this.

"So if your income tax was 45% and everyone else paid 25%, if your tax was reduced to 35%, would you call it a subsidy?

No, you wouldn't."

Sounds like a reduction in my tax rate - so not a subsidy. However if I was still liable for 45% but suddenly let off 10% for some reason, i'd call that an allowance or subsidy. It's not unusual to use tax breaks as subsides, nor is it necessarily a bad thing - not calling it what it is, is rather silly. I understand what you're saying about it not being the same as, e.g. the feed-in tariff, and agree to a certain extent - but that doesn't stop this being a subsidy, and it is none the worse for it.

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Coffee/keyboard

So what are they doing with the profits from us customers?

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Flame

Back to school for you

you misunderstand what "profit" means.

To most people, profit is what you have, AFTER you have spent money on running your business - including things like R&D, and investing in infrastructure. In this meaning companies cannot whine that making less profit means less investment, because the investment is what you put in before profit.

However, on the basis, I have never heard a journalist bitchslap a pasty-faced spokesperson who dares to wibble on that without massive profits, you won't get investment, it must mean something different on planet corporate.

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Re: Back to school for you@Jimmy Page

Back to school for you, more like.

Your logic works for a single point investment during its life. For a large business you need to continually re-invest in new assets as old ones wear out, be they old gas fields, worn out oil rigs, obsolete IT, company vans or the like.

If I might help you out with a wild simplification of the case of Centrica: They currently make profits of around £1.5bn each year after tax. Around half that is paid as dividends to the shareholders (largely your pension fund, your insurance company, and the like), half is retained by the company and used to contribute to the circa £1.4bn of annual capital investment, with the balance generally being made up by borrowing. Now, because banks won't lend ever increasing amounts of debt to any company, the company need to fund a big chunk of the capex from retained profits. Ergo, you don't get big new investment without big profits.

The reality is rather more complicated involving P&L, balance sheet and cash flow statement, but their financial statements are published, so you could go and read the detail if you want to.

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WTF?

These companies make ship loads of money

Why the hell to they need a tax break?

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Anonymous Coward

Re: These companies make ship loads of money

Many large companies manipulate their accounts to avoid paying tax in the UK. By allowing them to pay less tax, we encourage them to stop avoiding taxes. The tax saved from them avoiding avoiding tax helps offset the tax lost by giving them tax breaks ...

... or something.

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It's an inducement to encourage local gas production and secure energy resources under our control, rather than rely on Russian gas import to Europe or the slowly ramping but still miniscule renewable sector.

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Which homes, which energy?

"expected to meet the energy demands of 1.5 million homes"

The Register often contacts people and organisations that are in the news for their comments. Can you make it standard practice to find out what the energy demand of a home is because I am sure everyone uses homes with or without gas central heating and hot water depending on what they are selling. I am keen to these claims in well defined units:

Power: 1 sheep jub weight = 123.6MW

Energy: 1 Norris linguine = 14 Joules

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WTF?

So, this is same private company that saw an upturn in profits of 23% last year and makes £1.9 million PROFIT per DAY!

Austerity in action.

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WTF?

tax breaks for the needy

Does a company that makes a billion plus annually need any breaks?

Is pulling oil and gas out of the ground not a lucrative industry?

If the resource is left in the ground, will it get less valuable?

If it will get less valuable (believing that there will be a wild west of shale gas), then is it really a good idea to invest in exploiting these more expensive reserves?

If it will get more valuable, then aren't you cutting of your nose to spite your face with all your talk of jobs and economics?

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Re: tax breaks for the needy

"Does a company that makes a billion plus annually need any breaks?"

Depends. Previous government meddling had made further North Sea investment a worse bet than putting the money in the building society, and the changes are a none too well disguised U turn.

Of course, if you'd rather pay to import the gas, then the answer is no.

If you'd rather that a British based and managed company (not without many, many faults) is able to invest in producing gas from British reserves, then yes.

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Big Brother

This is merely George Gideon Oliver Osborne's way

of reducing the UK's budget deficit - and if you fail to grasp how the new £500m field allowance will aid in that worthy task, you are probably an over-age chav who should be ASBOed immediately....

Henri

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