The UK Government was accused last night of snubbing the offshore industry’s pleas for tax breaks and ignoring warnings that thousands of jobs could be lost if North Sea investment dries up.
The claims were made after the Treasury rejected across-the-board cuts in corporation tax, insisting they would not boost production.
Politicians and industry leaders said offshore platforms, pipelines and infrastructure will fall into disrepair and 50,000 jobs will be put at risk if companies do not get tax incentives.
Oil and Gas UK spokesman Mike Tholen warned that failure to reduce the tax burden on the UK’s oil and gas projects would be catastrophic for the industry and the country.
“Our security of energy supply, employment and tax revenues will be jeopardised, at vast cost to the nation,” the industry’s spokesman said.
Scottish Council for Development and Industry north-east manager Ian Armstrong said the need for action was urgent, adding: “Nothing would stimulate long-term investment in the North Sea and west of Shetland more than the reduction or the removal of the supplementary charge on corporation tax.”
The Treasury was responding to a report earlier this year from the Commons energy and climate change committee, which recommended tax cuts, particularly as a way of stimulating the development of difficult new finds west of Shetland.
Treasury chiefs claimed production would continue, that the price of oil was more important than tax incentives and that cutting tax would not boost production enough to offset revenue losses.
It admitted there had been “a marked fall” in spending on exploration, but claimed appraisal and development expenditure had “held up quite well” and that surveys showing levels of offshore activity were out of date.
The government assured oil and gas leaders it was keeping the situation under review and said it would be working with industry body Pilot on setting achievable performance targets while ensuring taxpayers received a fair return from the UK’s oil and gas reserves.
It also underlined Chancellor Alistair Darling’s commitment last week that he was as keen as the industry to extract as much oil and gas as possible.
Mr Tholen, Oil and Gas UK economics director, welcomed the assurances but warned: “Investment has declined over the last three years and will only begin to recover if significant steps are taken to ease the tax burden on UK oil and gas projects and restore their competitiveness.”
Kincardine and West Aberdeenshire Liberal Democrat MP Sir Robert Smith said the government was not taking the threat seriously.
“Our committee heard evidence that without a boost to investment thousands of jobs are at very real risk,” Sir Robert said.
“Ministers simply don’t understand the risk that offshore platforms, pipelines and infrastructure will fall into disrepair without adequate ongoing investment.”
Angus MP Mike Weir, the SNP’s energy spokesman who is also on the committee, accused ministers of complacency, adding: “We need a tax regime that encourages maximum development.
“Unless the government gets it right it could result in massive job losses in the north of Scotland.”
But Aberdeen North Labour MP Frank Doran said the outlook was not so bleak as some would have the government believe.
He said the oil price had halved from its ceiling of $140-$150 per barrel but was still at a level that ensured North Sea fields were able to pay their way.
Mr Doran said: “Yes, there was a reaction and some companies were considering large-scale job losses and most cut back expenditure – some dramatically.
“But things have levelled-off, the threat of redundancy has in most cases been withdrawn and the industry is continuing to invest at a lower level but one that ensures a sustainable industry.”
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