Vince Cable says the UK Government wants to nurture the north-east economy as Britain struggles to shake off the recession – and has hinted that the oil and gas industry may be spared further tax pain in the next Budget.
Chancellor George Osborne stunned offshore companies in March by launching a £10billion raid on the sector to fund a 1p cut in fuel duty.
Yesterday, Business Secretary Mr Cable refused to admit that his Cabinet colleague’s move was a mistake.
But the Liberal Democrat MP told the Press and Journal that the coalition at Westminster wanted to bring stability back to the North Sea.
Industry body Oil and Gas UK welcomed the news last night – but said more tax incentives were needed to repair the damage already done.
Mr Cable, once chief economist at Shell, was in Aberdeen and Westhill yesterday to visit a number of firms, including Divex, Sparrows and Aker.
It was the first visit to the north-east by a senior Cabinet minister since Mr Osborne’s shock announcement, which experts feared would put 40,000 jobs at risk.
Despite the anger, Mr Cable still believes the chancellor did the right thing.
“I don’t think that the overall strategic approach was a mistake,” he said.
“But we do recognise that there were concerns in the industry. We listened to them and responded.
“We recognise that it is an important industry and we want to help it, not hinder it.”
Asked whether that meant the offshore sector would not be targeted again next year, he responded: “I think that there’s an understanding and recognition in the government that you have got to have stability – that is a key issue for oil and gas producers.
“We have been listening to the industry and we know there have been concerns about field allowances and issues around gas.
“The chancellor has publicly undertaken to try and produce the best outcome we can.”
Two months after the March Budget, it emerged that North Sea oil production had suffered its biggest slump since records began, down 15.6% in the first three months of 2011.
Gas production also suffered a 17.6% drop.
In July, after months of intense pressure, the Treasury announced a package of field allowances worth £50million a year.
Such allowances reduce the amount of tax new entrants to the North Sea have to pay.
Within hours, Norwegian energy giant Statoil signalled its £6billion Mariner and Bressay developments were back on track.
Others soon followed, but Oil and Gas UK insists those field allowances will need to be extended to keep the recovery going.
Mike Tholen, the body’s economics director, said: “Maximising recovery of the UK’s oil and gas depends largely on whether the companies that are expected to invest tens of billions of pounds in an unstable price environment can achieve some certainty in their future tax treatment.
“In this regard, investors were severely shaken by the Budget of March 2011 and as a result, business confidence, exploration and the sale of assets to companies most likely to invest have all declined.
“Oil and Gas UK is working closely with the industry to establish the most effective means to reduce the damage done.
“We anticipate the current field allowance structure will need to be extended to sustain investment in existing and new fields, especially marginal ones, and in the near future will submit evidence in support of the case for change to the Treasury.
“Oil and Gas UK is also developing proposals to resolve current uncertainty over access to decommissioning tax relief, so that the Treasury has the evidence to establish a solution by the Budget of 2012.”
Mr Cable insisted that he and the government “care” about the industry. He added: “Even though I’m committed very much to the green economy, I do recognise oil and gas remains crucially important to the UK and we will support the industry.”
He is also predicting a bright future for the north-east with the growth of renewable energy.
“The north-east of Scotland is a very important and very successful part of the UK. It isn’t just oil and gas,” he said.
“In many ways the big growth industry of the future is going to be green technology, renewables, wind and tidal. Scotland is already progressing well in that respect and this is going to be the industry of the next few decades.
“Aberdeen is extremely well placed to take advantage of that.”
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