The Courier & Advertiser (Fife Edition)
North Sea forecasts in budget will be ‘wrong’ due to oil price fall
Expert warns forecasts are likely to be ‘out of date’ due to news
The oil price freefall means projections on the UK’s North Sea revenues are already out of date before the Budget is even published, according to a leading analyst.
Derek Leith, global oil and gas tax leader at accountancy firm EY, said there was “no way” the Office for Budget Responsibility (OBR) will have factored in the nosedive in the price of Brent crude in recent days.
The fiscal watchdog is preparing to publish economic forecasts after Chancellor Rishi Sunak delivers his inaugural Budget statement later.
Mr Leith said the price drop will affect projections on revenues from the North Sea, as well as how the oil price can impact the economy more generally, with the drop in fuel costs expected to benefit consumers.
He said: “On both of these, it is going to be wrong. There is no way in my mind at least that they will have factored in what has been happening.
“There will be the tax receipts they are forecasting for the oil industry in the UK, which will be presumed on the oil price, but also the wider functioning of the economy generally, which will factor in where energy prices are at, with crude being a key component.”
However, the UK’s oil and gas tax receipts have dwindled in the years since the 2014 oil price crash so Mr Leith said this aspect is not as “material” to the wider economic picture.
More important is having a “vibrant” oil and gas industry, which is a major employer in the UK.
He added: “Whatever forecasts they have will be wrong but I wouldn’t have thought that the tax revenues they expect for the North Sea will be very material to the overall benefit (of the economy).
“Oil and Gas UK and people like myself have always tried to discuss the macroeconomic benefits of having a vibrant oil and gas industry, not just Petroleum Revenue Tax and Ring Fenced Corporation Tax.”
Brent dropped more than 30% at the start of trading on Monday as a result of a breakdown in supply cut talks between Russia and Saudi Arabia, coupled with concern around the coronavirus outbreak.
It rallied slightly yesterday, climbing 8.7% to $37.34.