Bonanza from North Sea oil swells coffers

Gordon Brown has taken advantage of record profits being reported by the oil industry to boost the Treasury's coffers by more than £1bn next year in the single biggest fund-raising measure announced in the Budget.

Gordon Brown has taken advantage of record profits being reported by the oil industry to boost the Treasury's coffers by more than £1bn next year in the single biggest fund-raising measure announced in the Budget.

Together with nearly £700m which the Chancellor expects to raise by closing tax loopholes, the North Sea windfall will be more than enough to finance his pre-election hand-outs to pensioners, first-time buyers and families with young children.

The Government has been under pressure to impose a one-off tax on North Sea operators because of bumper profits reported over the past two months. Mr Brown has rejected this but instead announced he would align corporation tax instalments with petroleum revenue tax. Because the change in timing of payments largely has a one-off effect, the Treasury is only expected to receive an additional £210m and £170m in each of the following two financial years, compared with the £1.1bn increase expected in 2005-06.

The Chancellor also aims to increase the Treasury's tax haul by nearly £700m in the coming financial year through a raft of anti-avoidance measures. He expects the extra revenue from these to top £1bn by April 2008.

The biggest gain - £280m in the coming year and £430m in 2007-08 - is likely to come from a crackdown on the ruses used by investment banks to minimise the amount of tax and national insurance contributions paid on the bonuses awarded to their well-paid employees. Coupled with the rule requiring companies to disclose tax planning schemes in advance, this move will make it increasingly difficult for such organisations to find fresh loopholes.

There will also be a significant contribution from counteracting avoidance through arbitrage, or the exploiting of differences between or within national tax codes. The measure aims to block double dipping, where a tax deduction is given by both the UK and another country for the same expense, and deductions being given for a payment when tax on the corresponding payment has been avoided. Nick Udal, partner with BDO Stoy Hayward, said the provision was "wide in scope" and would affect many UK-based multinational groups.

Similar gains are expected from an anti-avoidance rule on double tax relief -predicted to raise £130m next year and £200m in 2007-08.