The unethical truth about Brown's stealthy new oil tax

Anthony Hilton12 April 2012

THE KEY thing about Gordon Brown's most famous stealth tax - his £5bn grab from pension funds - was that few people realised at the time how significant it was or how much money it would bring in. It was months, if not years, before people began to focus on its impact and discover how fundamentally it had changed the economics of pension funds.

History is repeating itself. In one of his throw away lines in the Budget speech the Chancellor changed the basis of North Sea oil taxation through the application of a 10% supplementary charge. Few people understand North Sea tax, just as few understand pension fund tax, so little notice was taken outside the oil industry. Yet this is both a stealth tax and, perniciously, a windfall tax. It is perhaps the most outrageous measure to be introduced for years.

Not many people paid attention at the time because the Chancellor's early remarks implied that the new oil tax would raise only a few hundred million pounds. That is true as far as it goes, but it does not go far enough.

Broker Wood Mackenzie says this year's yield is indeed only £127m. But it rises to almost £500m next year, more than £750m the year after and more than £1bn in 2005. If a capital value is put on these sums it is the equivalent of the Government arbitrarily confiscating £5bn of assets.

The industry is still in shock because even the oil- rich regimes in the more exotic parts of the world do not behave like this. They tax the flow of oil, of course, but they do not move the goalposts overnight; they do not invite people to develop oilfields under one regime and then decide to grab more for themselves when the oil starts to flow. What Gordon Brown has done would be considered unethical in a banana republic.

Sandler signal

ONE OF this week's more valuable insights came from the Association of British Insurers, which pointed out that three million fewer households will get financial advice now compared with five years ago because the cost of regulation makes it uneconomic to talk to them. Those who most need protecting are those who will get less help, thanks to the regulatory system.

Ignoring for a moment the uncomfortable fact that even in prosperous Britain the reason most people do not save is that they do not have any money, it is still surely the case that more people could buy share-related products. They don't because it is just too costly and too complicated.

Therefore the greatest service that Ron Sandler could do for the savings industry - both customers and providers -when he publishes his Treasury-commissioned report in a few weeks' time would be to devise a less costly way for people to buy the products.

Customers only need advice that leads to their being charged a lot for sales if a product is unsafe - meaning in this context that it has a high surrender penalty. But if the product is simple and safe with no such penalties and no excessive sales commission, regulation and advice before purchase is unnecessary. All that is needed is some form of CAT marking - a seal of value on cost, access and terms - so that customers can buy with confidence.

The insurance industry, with some notable exceptions like Legal & General, urgently needs to devise ways to make it less expensive for customers to buy their products. The Treasury would like that and the Financial Services Authority has even hinted that it will lighten its touch for the mass market. It simply requires Sandler to point everyone in that direction.

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