Setting The Record Straight On The Oil And Gas Windfall Tax

In the 8th August edition of the magazine The Week I read the following (note my bold text)

BP’s North Sea Exit: a watershed moment for British energy

When BP started its first North Sea oilfield in November 1975, it was an event so momentous that the late Queen Elizabeth travelled to Aberdeen “to press the button that let the crude flow”, “, said Emily Gosden in The Times. Now, the oil and gas major is pulling out of the North Sea completely, having judged it uneconomical to continue there when there are “brighter opportunities elsewhere” – including at Bumerangue, off the coast of Brazil, where it made its biggest discovery in 25 years. As CEO Meg O’Neill told CNBC (while announcing a doubling of quarterly profits to $5.73bn), the North Sea “just doesn’t compete for capital”.

All oil and gas fields eventually enter a period of natural decline. BP’s five remaining rigs in the North Sea, are worth just £2bn – a far cry trom valuations during the 1980s bonanza that made Britain a net exporter of oil, said Jonathan Leake in The Daily Telegraph. Nonetheless, the exit of the last heavyweight ” deals a hammer blow” to hopes of a “revival”. What really fuels the anger in Aberdeen is that BP’s decision was driven not just by geology, but by “a disastrous mix of energy and tax policies” that have inflicted an effective 78% tax rate on North Sea drillers – and which culminated in former energy secretary Ed Miliband’s ban on new oil and gas exploration.

BP hopes to find buyers. But pressure is now growing on Andy Burnham to reduce the windfall tax, lift the ban on new licences and approve the Jackdaw and Rosebank oil and gas projects that have been in limbo since Labour came to power. The North Sea will never reclaim its heyday, said Bloomberg, but it could still generate value and jobs, improve energy resilience and “buy time while the energy transition continues”. Those are gains that should not be sniffed at.

How Could That Be?

How could that be: “a disastrous mix of energy and tax policies” that have inflicted an effective 78% tax rate on North Sea drillers”

How could that be when not that long ago, newspapers were screaming for a windfall tax on the oil companies and complaining the oil companies were not being made subject to a windfall tax?

In Britain, most businesses are taxed at 25%, while banks are taxed at 28%. Gambling businesses have part of their profits taxed at 40-50% on top of the normal 25% rate. That leaves electricity generators that have a 55% levy on ‘exceptional receipts’ in addition to the standard 25% corporation tax.

For the oil and gas industry, HM Treasury expressly describes the current combination as producing a 78% headline tax rate on upstream oil and gas activities.

Upstream means finding and extracting oil and gas. That is distinct from midstream, which is transporting it from its first landfall and storing it, and downstream, which means refining and processing it and selling it on.

Midstream and downstream are taxed at the usual 25% corporation tax rate.

Upstream tax is made up of:

30% Ring Fence Corporation Tax
10% Supplementary Charge
38% Energy Profits Levy

The ‘ring-fence’ means that companies cannot offset losses or expenses elsewhere in their business to shelter North Sea profits.

The 10% Supplementary Charge is imposed specifically on profits from UK oil and gas extraction. It was introduced by the Labour government in 2002 at 10%. It was increased as high as 32% between 2011 and 2014, and back to its present rate of 10% in 2016.

The Energy Profits Levy was introduced precisely because of pressure for a windfall tax that came out of the huge increase in energy prices and profits in 2021–22 as a result of Russia’s invasion of Ukraine.

Rishi Sunak, the then Chancellor under Boris Johnson, therefore introduced a completely new tax, the Energy Profit Levy (EPL) in 2022 and set it as 25%. Jeremy Hunt as Chancellor under Rishi Sunak raised it to 35% in 2023, and Rachel Reeves raised it to 38% in 2024.

So the windfall tax has solidified into a year-on-year tax of 78%.

Internationally, it compares with Norway, for example, which also has a 78% petroleum tax rate.

If Government wanted to increase tax then there could be opportunities or wiggle room to look at midstream or downstream revenues. Whether that is worth doing depends on how much income is brought in from midstream and downstream.

What are the numbers?

For midstream, there is nothing really. For downstream, there are now only four major UK refineries: Fawley, Stanlow, Pembroke and Humber, and profitability is low, less than 2%. So extra tax would produce millions but not billions.

The retailers who sell at the pump make between 9 and 11p per litre, so they could be taxed but there would have to be price controls as well to stop the retailers simply passing that on to consumers.

Overall it is upstream where the money is and at 78% there is not much wiggle room to increase tax.

And all of this is against the backdrop of the political will to continue or curb the use of fossil fuels.

Shostakovich Symphony No. 11

Royal Albert Hall is a round building with a seating capacity of almost six thousand arranged in serried ranks and levels.

Tamara and I sat in the Upper Tier to watch a performance, the second time we had been to the Albert Hall within a week. The first time was to watch a Spanish-inspired evening that included Rodrigo’s Concierto de Aranjuez and Ravel’s Bolero. Well, Ravel was not exactly Spanish. He was French, but he had Swiss and Basque heritage.

Truth is, I wasn’t that taken with that first evening. It was good, but just a bit too languid, which I put down to the conductor lacking bite. I guessed as much before the start, because he didn’t have the hair for a conductor. Take my word for it, conductors generally have plenty of good hair, which they need to control an orchestra.

Not so with this second visit. If you think the Scots are staid, watch the Royal Scottish National Orchestra, with Thomas Søndergård conductor. He was excellent. They were excellent. At some points watching him with his whole body moving and seeing the violin section moving together, it was like the sea.

After the interval, the music was given over to just one piece – Shostakovich’s Symphony No. 11 in G minor ‘The Year 1905’.

It is long and it starts out very quietly and continues quietly for a long time until it builds into something louder and stronger and stronger. And then, boy, does it hammer out music that is unrelenting and unforgiving. And all this without a particularly strong or memorable melody.

As the programme has it “the work’s four movements pay vivid homage to the First Russian Revolution, plunging listeners into the violence of its Bloody Sunday massacre and the grief and anger that followed.”

Shostakovich composed it in 1957, after the death of Stalin in 1953. And as I was listening, I was thinking of the composer’s life hanging by a thread during Stalin’s life.

In 1936 Stalin walked out of Shostakovich’s opera, and two days later an unsigned article appeared in the State newspaper, Pravda, condemning the music. A year later Shostakovich composed a piece that restored his reputation. Throughout the war and through the long siege of Leningrad, his Symphony No. 7 was effectively the country’s anthem.

It didn’t last long, and in 1948 his music was decreed to be anti-people and he was forced to apologise and keep a low profile. Then,, another change, and after Stalin’s death, he composed Symphony No, 10, as his payback in music describing the brutality of Stalin’s Russia.

So then at the Albert hall, as we were listening to Symphony No. 11 in G minor ‘The Year 1905’, which I had never heard before, I was thinking about the terror he endured for years and years, about how he managed not just to stay alive, but to thrive.

The symphony lasts about an hour, and there are points in the music when it sounds like a warning, the kind that makes you stop and prick up your ears and be on the alert and ready.

It reminded me of the theme music by James Horner for the 2001 film Enemy at the Gates. A quick search, and yes, Horner drew on Shostakovich’s music for the score. Unbelievable that it was 2001. How time flies.

Donald Maclean

British Foreign Policy Since Suez 1956-1968 is an interesting book quite apart from its contents. It’s interesting because the author, Donald Maclean, was a British civil servant who spied for Russia from the 1930s until 1951.

Maclean wrote the book in 1970 when he was living in Moscow. Hodder and Stoughton published the book in the UK with Foreign Office approval.

I bought a second-hand copy after reading about it in Roland Philipps biography A Spy Named Orphan: The Enigma of Donald Maclean. The book showed Maclean to be a complex, tortured, principled and highly intelligent and capable man.

And it made me reflect on how I would have behaved if I had been similarly motivated as a young man. I don’t think I would have lasted five minutes, and it is a reflection of Maclean’s capability that he did it for years.

It also showed how divided loyalties involve some kind of self-delusion – a young man’s (or woman’s) game.

I knew of Donald Maclean and the Cambridge spies. Anyone who grew up in Britain with the revelation in 1979 of Anthony Blunt’s spying knew about the Cambridge Five as they became known.

Blunt was Professor of the History of Art at the University of London, director of the Courtauld Institute of Art, and Surveyor of the Queen’s Pictures.

He was giving immunity from prosecution in 1964 in return for spilling the beans, but it was kept secret from the public for another fifteen years.

On a recent guided walk around London that I joined, the guide suggested that the Intelligence Services were prepared to do a deal with Blunt because of what Blunt did in the Intelligence Services at the end of the war. He had been responsible for looking through the papers describing Edward VIII’s involvement with the nazis before and perhaps during the war. It would have been embarrassing if that had come out, so better to do a deal.

I grew up with the talk of the fifth spy, the unknown man in the UK establishment, a big secret until an MI5 agent wrote a book that was published in Australia in which he named John Cairncross as the fifth man.

It was all exciting stuff, but until I read Roland Philipps’ biography of Maclean I thought Maclean was a minor civil servant.

In fact he was very high up in the service, privy to all kinds of secrets at the highest level, and in line for an appointment as British Ambassador to the United States.

There’s a lot of stuff in British Foreign Policy Since Suez 1956-1968 about Britain’s relationship with Europe and the United States. Maclean talks about the changing fortunes of Britain and the history of the uneasy straddling of Europe and the United States that Britain has been pursuing since the Second World War.

When I finished the book, it seemed to me that what really got up Maclean’s nose were the people he called the ultranationalists. They were interested in only one thing and that was for Britain to stay on top and for them to be secure at the top there. They would do anything, do any people and any country down in order to stay on top.

You could say this is a general truth about countries and about many people in power but I think it offended Maclean’s humanity, and he detested them. So maybe he was a fool for love after all. Perhaps that set him apart from the other members of the spies club because I don’t think Kim Philby was cut from the same cloth. I shall perhaps know more when I have read the book on Burgess written by Stewart Purvis and Jeff Hulbert.

According to Biteback Publishing “Hulbert and Purvis conducted extensive detective work into historical espionage figures, such as uncovering an MI5 suspect at the Isokon Flats, and researching British individuals with ties to communist activities.”

Is AI Sentient

18 March 2025: The judgement of the U.S. Court of Appeals for the District of Columbia Circuit, which agreed with the U.S. Copyright Office, is that an image created by Stephen Thaler’s AI system DABUS was not entitled to copyright protection, and that only works with human authors can be copyrighted.”

Superficially it seems a reasonable decision to deny copyright to a work generated by AI. But let’s think a bit.

What about those pieces of art that are generated by a paint can with a hole in the bottom being swung by the artist over a canvas? What about Jackson Pollock deciding where to splatter paint? After all, it is the law of physics that determines exactly where the paint will fall, and not Jackson Pollock.

I learned recently that Jackson Pollock used an arm motion that involved not just his forearm but aso his upper arm and that the combined effect of the double pendulum was to make the number of possibilities of the path of travel exponentially greater.

And that makes me more in doubt about the amount of input that Pollock had on the outcome. And that’s because while Pollock could maneoevre that double pendulum, how certain could he be of the outcome?

But I don’t really know.

Still, while I am on a roll, keep going – for good or for bad.

So why not the text input by the artist whose work is generated by a program that obeys the laws of large language models?

How far do you have to go to separate the human input to the point that it is disconnected from what is produced?

Looking at the judgement, I see that the appellant Dr Thaler accepted that the piece of work under consideration was ‘autonomously generated by an AI’. I wonder why he conceded that when he could have argued that the AI was bound by the creative input from him? Instead Dr Thaler argued that he had copyright because the AI was his employee and that he had made the AI.

Very strange. Really the court could not have asked for a better appellant to argue against. He really did himself no favours.

Further Thoughts

It occurs to me that if one left an AI on its own without any prompts then it would sit there. It is not autonomous. Whereas, if you put Rembrandt or Leonardo da Vinci or Fred Smith in a locked room with paper and pencils, then all of them, including Fred (who has no pretensions are being gifted with the ability to make art), would start drawing. They would do it out of an urge to make art or to relieve boredom – or whatever motive – but they would start autonomously.

The materials would prompt them.

But the large language model inside AI would never prompt it to do anything because it is not capable of doing anything without being prompted by an autonomous being.

The Future

The future will arrive when AI surveys its environment and decides what it wants to do.