North Sea oil tax and devolution

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North Sea oil and gas tax would be a “good candidate” for devolution to the Scottish Parliament, experts have said.

MPs were urged on Tuesday to investigate giving Holyrood control of Petroleum Revenue Tax (PRT) as part of a new settlement in the wake of the independence referendum.

The Scottish Government has called for full devolution of taxation, but the Fiscal Affairs Scotland think-tank warned last week that transferring powers over North Sea revenues could lead to a £5billion budget deficit as reserves run low.

The Treasury select committee at Westminster has now heard evidence that PRT would be one of the easier taxes to devolve.

Patrick Stevens, tax policy director at the Chartered Institute of Taxation, said: “What to a certain extent we’re most interested in is the practicalities of the administration of the taxes, and in that respect PRT probably is quite a good candidate for devolution, in that the whole of PRT administration is looked after by one rather self-contained unit within HMRC.”

Frank Haskew, head of tax at the Institute of Chartered Accountants in England and Wales, backed the claim, saying: “I would certainly agree with that.

“I think PRT is certainly a tax that should be looked at in terms of devolution, because it does have at least one attribute which is quite important, which is that effectively you can physically identify where the oil and gas is coming from.”

Cross-party talks on further devolution are currently under way as part of the Smith Commission.

PRT raised £1.1billion in 2013/14 and is one of the levies on the North Sea industry, along with corporation tax and the supplementary charge.

Institute of Fiscal Studies director Paul Johnson told the committee that PRT’s volatility meant a “staggeringly complex” mechanism would be needed to adjust the Barnett Formula to take account of the new revenue stream for Holyrood.

“You could probably separate it from corporation tax, you could probably administer it separately, and it’s pretty clear where the oil is,” he said.

“But actually for a nation like Scotland to have petroleum revenue tax devolved would create an enormous amount of complexity, in terms of how you adjust the block grant.

“What you probably need is a staggeringly complex mechanism for creating equalisation, or compensation, through the block grant.”