Chancellor urged to take “urgent action” and cut tax for oil industry

The Chancellor has been pressed to take “urgent action” and cut the headline rate of tax for the struggling North Sea oil industry in his Budget next month.

Deputy First Minister John Swinney has written to George Osborne highlighting the “substantial challenges” the sector is facing amid plummeting prices, and setting out a package of measures he wants the UK Government to adopt.

Mr Osborne cut the supplementary charge on oil industry companies’ profits from 30% to 20% in his Budget last year.

But Mr Swinney said there must be a further “substantial reduction” in the headline rate of tax in order to create “an internationally competitive tax regime in the North Sea”.

He told Mr Osborne: “If the stated aim of your Government is to maximise economic recovery, this must be reflected in the design of the taxation system. The North Sea must be considered a competitive international region for investment, with fiscal stability and predictability at the centre of the tax regime over the longer term.

“In addition to addressing the tax burden, a commitment must also be provided that there will be no tax increases over the course of this UK parliament, with mandatory industry consultation on all significant policy proposals.”

Mr Swinney said “regrettably” no measures to support oil and gas were included in last year’s Autumn Statement, and added that since then, “the outlook for the sector has deteriorated further” with prices having fallen below 30 US dollars a barrel (£20.70) last month.

Mr Swinney is also calling on the UK Government to change the tax regime to encourage exploration – which he says is at “historically low levels” – and enhanced oil recovery.

Tackling the barriers to decommissioning should be a “priority” in the Budget, he added, arguing this could “encourage innovation and efficiency by enabling a greater use of decommissioning specialists”.

He also suggested the Chancellor considers other forms of support for the industry, such as Government loan guarantees, to sustain investment in the North Sea.

It comes after Deirdre Michie, the chief executive of industry body Oil and Gas UK, warned last October that further tax changes could be required if oil prices remained low.
She said at the time: “If the oil price continues to be lower for longer we will need to work with the Treasury to see what other measures may be required, including revising the headline tax rate, which would be consistent with the Government’s fiscal strategy of tax rates falling over time.”

Mr Swinney stated: “The Scottish Government will continue to do all it can to support the sector. It is clear, however, that the UK Government must take urgent action to reduce the headline rate of tax at the March Budget. The fiscal regime must not be a barrier to investment and activity in the North Sea.”

Labour MSP Lewis Macdonald said: “Labour believes the offshore tax regime should be adjusted to support our oil and gas industry at a very difficult time, and we believe the Chancellor should use the Budget to support that.

“We also believe the Scottish Government has to step up to the plate and take action on the area for which it is responsible, namely stewardship of the Scottish economy. It is extraordinary that, even now, John Swinney does not know how many jobs have been lost across the Scottish economy, nor does he seem to think he needs to do that.”