Why the UK government’s fracking payout claim is just not true
On Friday evening, just after 6pm, government spin doctors sent select media an email with a big fracking announcement.
Theresa May has re-written Osborne’s plans to ensure local people benefit directly from fracking.
“Communities could receive up to 10% of tax revenues derived from shale exploration in their area to spend on priorities such as local infrastructure and skills training. The new fund could deliver up to £10 million per eligible community.”
There were just two rules. First, the story was embargoed until Sunday, so there were no working hours between the email being sent and the story going live.
Second, the information was “shared on a no approach basis”. Reporters had to report the news without actually checking it with anyone else – a trick used extensively during the referendum campaign.
It’s easy to understand why.
Like much of what was said in the build up to Brexit, the government’s fracking claim is, at best, massively misleading and, at worst, a bald-faced lie.
It’s almost certainly not £10k
Helpfully for some, Westminster spin doctors were available to take the calls of confused reporters who were unable to ask anyone else anything at all.
We don’t know exactly what they said – because they briefed anonymously and off the record – but it appears they briefed out that the £10m could, in theory, be divided by number of households in a village.
At the very least they didn’t deny it.
Someone must have said the phrase £10k per household.
The claim was reported here, here, here and here though the Observer (and PA) went with “it is understood that” it could be “between £5,000 and £20,000” and the Mail on Sunday made its own calculation of £13,000.
The message definitely got out.
Yet in public no number was ever mentioned. Not in the eventually published public release, not in the consultation.
In fact, the silence was such that one media outlet – Sky – seemed to panic, changing its own headline from £10k to just “payments” with no number to be seen anywhere in the copy.
That’s because nobody knows the actual number. The “up to” £10m is meant to be divided various ways with household payments being just one (the rest going to community benefits).
As the Mail on Sunday suggests, to get to a figure like £13,000 you have to assume
a) fracking happens
b) it’s really profitable
c) we get loads of tax
d) the full £10m is allocated
e) it all goes to household payments (which is not even policy) and
f) that the community in question has fewer than 1,000 households
There won’t be payments during exploration
But wait. We’re getting ahead of ourselves. Back up.
The whole point of the announcement is to build support for shale gas exploration in communities right now. That’s why the presser said “derived from shale exploration in their area”.
But the money it’s talking about only exists after shale exploration. It applies to the tax on the profits from full-on commercial gas extraction, which is totally different.
Indeed, as the government’s own consultation highlights, exploration and production may not only be years apart, they may not even happen in the same place.
“As these production sites have not yet been developed,” the consultation notes, “we do not yet have a full picture of precisely which areas will host shale developments, and how the communities associated with a particular development should be defined.”
Instead, the consultation goes on, communities during the exploration phase will be offered £100,000 per “fracked well” under a non-legally binding industry scheme.
There is no plan to pay that directly to households but if they were it would work out to be £136 for each of the 735 households in the village of Balcombe.
There may never be money for the payments
But there is a bigger problem.
Even once the industry is up and running, the whole plan depends on the government raking in around £10bn in tax from shale gas – which could politely be described as optimistic.
That’s because the UK has already claimed “the most generous tax regime in the world” for shale gas companies, who will pay tax at between 30 and 40% on their field profits.
If they make any profits, that is.
Profits depend on much gas there is, how costly it is to extract and the market price of oil and gas, which has been volatile of late.
In its latest update on the UK’s North Sea fields the government’s tax and spend watchdog, the Office of Budget Responsibility (OBR), noted that “there are only a few profitable firms” left in the sector.
In the US it is fracking firms heading for bankruptcy leaving communities and taxpayers with the costs of cleaning up afterwards.
And even profit-making firms don’t always pay much tax.
As we reported earlier this year, UK fracking firms will be able to offset the money they spend on drilling and infrastructure against their tax liability.
Treasury documents suggest the costs of that will start being felt as soon a production starts.
In fact, right now, the UK is paying tax back to the oil and gas sector.
The latest OBR forecasts suggest the the taxpayer will pay oil companies over £1bn a year from this year through to 2021 as they reclaim money to pay for their losses and costs of decommissioning.
In fact, the payments idea may not happen at all
Indeed the policy itself doesn’t really exist
The consultation states that households should “gain directly” but the issue of “direct payments” is instead phrased as a question, with no guarantee it will actually happen.
It notes that household payments may not be very generous
“There will clearly be a trade-off for communities in either choosing to benefit from funds directly, which may result in a relatively small per-household payment depending on the revenues and size of a particular community”.
With officials themselves noting concerns that fracking could reduce the value of house prices by 7% it’s easy to see how a payment of a few hundred or thousand pounds if things work out in future may prove a hard sell.
The payments that may happen aren’t from the government
There is – actually – another scheme to pay communities who find themselves close to new fracking wells.
The industry has suggested it will give 1% of revenues, with two thirds going to communities affected – though again the pledge is both non-binding and constantly up for review.
If it was paid to households on a big site – let’s say with revenues of £100m – that would work out at around £1000 for a small rural community like Balcombe.
And there isn’t any plan to do that either.