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UK oil industry tax not expected to lead to fuel price increases

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The windfall tax on oil companies announced in the Budget will not be passed on to motorists in higher fuel prices, a Treasury minister has said.

The chancellor announced a £2bn windfall tax on North Sea oil producers, to pay for a fuel duty cut.

Labour said the oil firms might recoup this through higher pump prices.

But Danny Alexander said consumers would not be passed these costs because petrol retailers could source oil from whatever source was the cheapest.

In Wednesday’s Budget, Chancellor George Osborne said: “The price of oil has risen 35% in just five months. Oil companies are making unexpected profits.”

He said he would introduce what he described as a “fair fuel stabiliser”, adding: “From tomorrow the supplementary charge levied on oil and gas production will increase from 20% to 32%.”

He said this would raise an additional £2bn ($3.3bn).

“I don’t want important investment in the North Sea lost,” Mr Osborne continued.

“If the oil price sustains a fall below $75 – and we will consult on the precise figure – we will reintroduce the escalator and reduce the new oil tax in proportion.”

The moves by the chancellor come in response to a recent surge in global oil prices.

As well as cutting fuel duty this year, he said that an inflation-linked rise in duty planned for next week would be delayed until next year.

Labour’s Treasury spokeswoman Angela Eagle, speaking on BBC Two’s Newsnight programme, suggested oil companies could recoup money lost to the windfall tax by putting up prices at the pumps.

But Mr Alexander, the Chief Secretary to the Treasury, said he could guarantee that would not happen.

He said the suggestion was “complete nonsense” because the North Sea oil companies were entirely separate from those selling fuel at the pumps who have access to a competitive global oil market.

“The oil market is a global market. It’s not going to feed through to the price of oil,” said Mr Alexander.

He went on: “If the oil companies try to pass that on to retailers they will simply buy their fuel from elsewhere. You’ve got a global market for oil and you’ve got a competitive market for the supply of fuel, so there is no prospect of that being passed on.”

The chancellor’s windfall tax plans were given a cool reception by the petrochemicals industry.

“This tax hike could have a chilling impact on future investment in the North Sea,” said Mark Hanafin, managing director of Centrica Energy.

“With more than 50% of Britain’s gas now imported, it is vital for our energy security and for the economy that investment is maintained to ensure we extract all of the untapped hydrocarbons we can.”

Shadow chancellor Ed Balls has blamed rising VAT for high pump prices.

“The idea that drivers around the country should be grateful for a 1p cut in fuel duty when George Osborne’s VAT rise is adding 3p to the price of petrol is laughable,” Mr Balls said.

As reaction to the Budget continues, BBC political correspondent Carole Walker said: “Labour will keep up the pressure on the government warning of the dangers of slow growth, rising unemployment and higher than expected borrowing.”
Source: BBC

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