UK budget watchdog slashes forecast for oil and gas tax revenue

Britain's budget watchdog has slashed its forecast for how much tax will be paid by the oil and gas industry over the next 25 years, a move that highlights the fiscal challenge that would be faced by an independent Scotland. The Office for Budget Responsibility said on Thursday that it expected total tax revenue between now and 2040 to amount to just 8 billion pounds ($12.4 billion), compared with the 57 billion pounds predicted a year ago.
The steep fall reflects the past year's near halving of oil prices, as well as lower output and rising costs as North Sea oil fields - mostly off the Scottish coast - start to run dry. "Our medium-term forecasts to date have tended to be over-optimistic," OBR chairman Robert Chote told reporters in London as he presented an annual report on fiscal challenges to Britain over the next 50 years.
During last year's unsuccessful campaign for Scottish independence, supporters of secession said oil and gas revenue would allow Scotland to spend an extra 1,700 pounds a head on public services, compared with the British average. The OBR said accurate forecasts of oil and gas revenue were much harder than for most other taxes, and that it assumed oil prices would rise in line with inflation over the period, while production would fall by 5 percent a year.
Part of the weakness in tax revenues is because oil and gas companies operating in Britain can receive repayments of past tax if they incur losses, for example when they decommission oil rigs. Most of the 8 billion-pound tax revenue forecast is expected to come in the next five years.
The OBR said that looking at Britain's public finances as a whole, public sector net debt was likely to fall to 54 percent of gross domestic product by the mid 2030s from 80 percent now, before rising as the population aged. The forecasts assumed annual net inward immigration of around 150,000 a year - much more than in 2014's forecast - and the OBR said debt would be higher if immigration slowed. On Wednesday, newly re-elected finance minister George Osborne said the OBR would monitor a government commitment to run budget surpluses during normal economic times. Chote said the government needed to define what it meant by normal times, and that it might not be easy to calculate.