UPDATE: in the Budget on Wednesday, Chancellor Osborne announced a £1.3bn ($1.9bn) handout to the oil industry, including tax breaks, reduced tax rates and direct government funding of seismic exploration. Our comment:
David Cameron has said that fossil fuel subsidies “rip off taxpayers”. That’s precisely what George Osborne did today, giving a £1.3 billion handout to highly profitable companies in spite of austerity, and showing contempt for international efforts to stop runaway climate change.
Champagne corks will be popping in oil company offices, but this is terrible news for the public and for the climate. On top of the handout, the government will directly fund looking for more oil, at a time when the world already has more oil reserves than can be burned within the agreed 2-degree limit
This blog was written jointly with Mika Minio-Paluello of Platform
Over recent months, the UK oil industry has waged an all-out lobbying war for more tax breaks. They complain that they are suffering from the fall in oil prices, and they need help from the government if they are to survive. So in tomorrow’s Budget, Chancellor George Osborne has indicated there will be some oily handouts.
In austerity Britain, there are plenty of people who are genuinely suffering. But oil corporations are not – as new research by Oil Change International and Platform shows.
The analysis of government statistics on profitability shows that, between 2008 and 2014, when the oil price was high, oil companies in the UK North Sea achieved an eye-watering 33% rate of return. Companies in other sectors – excluding banks – averaged 10% over the same period. 
A sensible approach might be to put some of this excess profit away for a rainy day: everyone knows the oil price is cyclical.
Instead oil lobbyists conveniently forget that windfall: they point out that the industry received £5.8 billion ($9.2 bn) less than it spent in 2014. Official statistics are not yet available, so that figure can’t be checked. But assuming it’s correct, we found that between April 2009 and March 2014, companies netted £47.3 billion ($74.7 bn) in free cash flow, or £9.5 billion ($15 bn) per year – more than enough to offset any recent loss. 
So in reality, it’s not about survival: it’s about using public money to sustain enormous rates of profit.
Less than two months before an election, this would seem a great opportunity for the opposition. Austerity, climate change – the government should not put money into a wealthy and dirty industry.
But instead, UK politicians have been falling over themselves in a generosity competition towards the oil industry. Sadly, Labour and the Scottish Nationalist Party have instead demanded that Osborne should do more.
Politicians’ sympathy for oil is rationalised in terms of jobs, contributions to the economy and energy security. But the industry employs just 0.1% of the workforce. Even at its peak, it provided less than 2% of government revenue, and with lower oil prices it’s less than 1%. And as for energy security, oil is traded on global markets: UK-produced oil does not stay in the UK. 
Furthermore, the answer to fears about those 40,000 jobs would be for companies to accept a normal rate of profit rather than demanding an excessive one.
Yet the industry has called for Osborne to reduce or even abolish the Supplementary Charge, currently levied at 30% – the only tax oil companies pay on any fields developed after 1993, apart from Corporation Tax. They also want him to increase tax breaks, including for exploration.
The industry already gets up to £760 million ($1.2 billion) in tax breaks, as research by Oil Change International and the Overseas Development Institute found in November. These breaks – which could instead cover the salaries of an additional 15,000 nurses – fit the UK government’s definition of fossil fuel subsidies.
At the New York climate summit in September, David Cameron called for “fighting against the economically and environmentally perverse fossil fuel subsidies, which distort free markets and rip off taxpayers.” Perhaps he should start the fight closer to home.
1: The data is sourced from the Office for National Statistics
2: Total free cash flow = gross operating surplus – taxes – investment
Gross operating surplus Q2 2009 – Q1 2014: £128.4 bn
Taxes, tax years 2009/10 – 2013/14: £35.9 bn (p.7)
Investment, Q2 2009 – Q1 2014: £45.2 bn (worksheet 1.9). Since these figures are only available for calendar years, we have adjusted to tax years by assuming investment evenly spread over each year multiplied 2009 figure by 0.75 and 2013 figure by 1.25)
Free cash flow = £128.4 bn – £35.9 bn – £45.2bn = £47.3 bn