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Reader's Letter Of The Day

Posted on the 22 August 2013 by Markwadsworth @Mark_Wadsworth
From yesterday's FTSir, Might it not ameliorate the antagonism towards fracking if the government were to agree that part of the proceeds would go to setting up a new sovereign wealth fund?  Michael Melville, Great Chishill, Cambs. Cracking idea.  For some inexplicable reason, people love the idea of hypothecated taxes and I'm sick and tired of hearing about Norway's oil fund. They had as much oil in "their" bit of the North Sea as we did but have only a tenth of our population, and they have super-high tax rates on oil companies, so it's hardly surprising there's a surplus.  So first of all, you have to have a proper tax system in place. With natural resources, the simplest thing is for the government to pay businesses to get stuff out of the ground.  So once somebody has worked out how much stuff is down where, the government puts it out to tender and whichever business offers to extract a certain minimum amount per year for the lowest price gets the gig. As far as I am concerned, they can agree a net-of-tax price so that the business doesn't have any hassle with corporation tax or PAYE afterwards.  That means the company has a stable flow of income (it can choose whether to incur large set up costs and extract it all quickly or spend less and extract it more slowly) and it is protected from most of the downside risk. The government on the other hand, has all the up- and downside risk, but at national level, this scarcely matters.  And then you bung all the money from the unearned gas profits (market value minus extraction costs) into a wholesome sounding fund. The Greenies will want it to be spent on windmills, the CPRE will want it spent on conservation, a sane person would want it spent on reducing the deficit, we can have that argument afterwards.

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