Fossil Fuel “Subsidies” In The UK

By Paul Homewood

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It has often been claimed that the UK is one of the leading subsidisers of fossil fuels in Europe.  But I have always had great difficulty in getting hold of the actual numbers which form the basis of such claims.

Fortunately, Bruce Everett’s study, which I published earlier, includes a full spreadsheets of his workings, including detail of the OECD’s estimation of subsidies. Detail is here.

The following table summarises what the OECD call subsidies in the UK:

OECD Fossil Fuel Subsidies 2015£m
Tied Oil Scheme1205
Reduced Rate of VAT4249
North Sea Tax Breaks137
Exemption from CCL727
Inherited Coal Liabilities232
Total6550
  • The tied oil scheme essentially applies to oils which are not to be used for fuel, for instance lubrication. This cannot be regarded as a subsidy for fossil fuel, as it merely applies the same tax treatment as alternative products, such as synthetic oils.
  • Reduced rate of VAT mainly applies to the rate of 5% which is charged to domestic users of gas and power. Again, this is not a fossil fuel subsidy, or even taxation foregone, as it applies to all sources of power including renewables. There is no law or precedent that says energy should be taxed at the full rate of 20%, and many other goods are zero rated, as energy used to be.
  • North Sea oil tax breaks are not subsidies either – they simply define what expenses are allowable and when they can be claimed against corporation tax. Such breaks are common across many industries, and even after allowing for them, overall corporation tax rates on oil and gas producers remains substantially higher than other businesses.
  • Exemption from the Climate Change Levy – businesses pay the levy on purchases of electricity, gas and coal, but there are certain exemptions, such as use in CHPs, non fuel use and not used in the UK. Also intensive energy users can claim partial exemption if they sign Climate Change Agreements, committing them to reducing emissions of CO2. The bottom line, of course, is that the CCL is an extra tax on fossil fuel use, so any “exemption” cannot be regarded as a subsidy.
  • Finally, inherited coal industry liabilities. When the coal industry was privatised in the 1990s, there were massive liabilities outstanding dating back decades, for instance for workers’ compensation claims and environmental clean ups. As part of the sale, the state retained responsibility for these liabilities. Once again, these are not “subsidies”, merely a cost associated with coal production many decades ago.

Bottom line is that there are no subsidies for fossil fuels in the UK.

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July 25, 2020 at 10:48AM

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