Chancellor George Osborne has announced a £1.3 billion package of support for the oil and gas industry in his final Budget before the general election while saying an independent Scotland “would never have been able to afford” the measures.
Among the measures he set out in his Budget speech is a cut in the supplementary charge on oil industry companies’ profits from 30% to 20%, backdated to January.
The move effectively reverses the hike in the 2011 Budget when oil prices were much higher.
Mr Osborne said the UK Government will cut petroleum revenue tax from 50% to 35% next year, introduce a “simple and generous” tax allowance to stimulate investment in the North Sea from the start of April and boost offshore exploration by investing £20 million in new seismic surveys of the UK continental shelf.
The package is expected to result in more than £4 billion of additional investment over the next five years and increase production by 15% by the end of the decade.More on Budget 2015 Chancellor claims tough decisions have worked The key points How they reacted How it affects Scotland Technologists pleased with focus on the ‘Internet of Things’ Osborne aims at ‘renegade nationalists’ during battle memorial announcement“It goes without saying an independent Scotland would never have been able to afford such a package of support,” Mr Osborne said.
The North Sea has been hammered by the plunging price of oil, with hundreds of job cuts announced in recent months and fears a drop in investment could lead to the accelerated decommissioning of oil fields.
Scotland’s Deputy First Minister John Swinney said it was a long overdue “U-turn”.
“Measures to safeguard the North Sea are a step in the right direction for our oil and gas sector,” he said. “The Scottish Government has been calling for such measures, along with the industry, for some time.
“Today’s measures are a glaring admission by the Chancellor that his policy for the North Sea has been wrong and the poor stewardship by the UK Government has had a detrimental impact on our oil and gas sector and the many people who work in the industry.For in-depth coverage of how the Budget will affect you, see Thursday’s Courier”It has taken the Chancellor four years to admit the tax rise he implemented in 2011 was a mistake. A heavy price has been paid for this mismanagement.
“Today I cautiously welcome the U-turn by the UK Government to take action on the future of the North Sea. We will study the proposals in detail. It is now essential that work is focused on boosting investment and growth in the North Sea sector.”
Danny Alexander, Chief Secretary to the Treasury, said: “The major package of investment in our oil and gas sector, including a new investment allowance, a 10% cut in the supplementary charge and a 15% cut in petroleum revenue tax, shows that the UK Government is determined to safeguard the future of this vital national asset and keep our economy on the road to recovery.”
Scottish Conservative leader Ruth Davidson said: “The Chancellor has listened to the oil industry and come good on the pledge we made to help.
“These tax breaks will aid investment and ensure a secure future for the North Sea.
“Today’s announcement won’t be a cure for all of the North Sea’s ills, but it’s a strong start.
“This is yet more proof that the North Sea is best served within the strength of the UK, which can deliver assistance a separate Scotland simply would not have been able to.”
Derek Leith, head of oil and gas taxation at Ernst and Young, said the package was “positive news” for the industry, with the reduction of petroleum revenue tax likely to boost more mature North Sea fields that have been taxed at a marginal rate of 81% despite falling production and rising costs.
He said: “The UKCS (UK Continental Shelf) is a mature oil basin and, to remain capable of attracting international investment, it must have a very competitive tax regime.
“The Government has taken a significant step towards creating such a regime today and industry will hope that further change will be forthcoming in the months ahead as industry, HMT and the new Oil and Gas Authority work together to ensure the longevity of a vital sector of the UK economy.”
The UK’s biggest offshore trade union, Unite, said the industry must now end what it described as an “opportunistic assault” on North Sea jobs and conditions.
Unite’s Scottish secretary Pat Rafferty said: “We are clear that economic reform of the North Sea must go hand in hand with sustaining jobs and strengthening employment and workplace health safety rights.
“What we cannot contemplate is a deregulated future for the North Sea – a race to the bottom on jobs and standards where workers will have to work longer for less.
“Our challenge to the industry is this: You have got what you asked for, so stop attacking your workers’ livelihoods and working conditions.
“With their morale at rock bottom, the workforce needs this confirmed immediately.”
Industry body Oil and Gas UK hailed the package as “sensible and far-sighted”.
Chief executive Malcolm Webb, said: “Today’s announcement lays the foundations for the regeneration of the UK North Sea. The industry itself must now build on this by delivering the cost and efficiency improvements required to secure its competitiveness.
“These measures send exactly the right signal to investors. They properly reflect the needs of this maturing oil and gas province and will allow the UK to compete internationally for investment.
“We also welcome the Government’s support for exploration announced today. With exploration drilling having collapsed to levels last seen in the 1970s, the announcement of £20 million for the newly formed Oil and Gas Authority to commission seismic and other surveys on the UK continental shelf (UKCS) is a very positive step.
“Along with substantial industry efforts to address its high cost base and the regulatory changes now in train to provide more robust stewardship, the foresight shown by the Chancellor in introducing these measures, will, we believe pay real long-term dividends for the UK economy.”
Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “These measures were necessary to reflect the challenges facing the oil and gas sector in Scotland resulting from the prolonged low oil prices.
“Together with a simplification of the tax allowance regime, this must be the start of a process to develop a strong and coherent fiscal plan for the North Sea that will help to ensure that Scotland and the UK continues to benefit from our natural resources in the long term.”
Derek Henderson, senior partner in Deloitte’s Aberdeen office, said: “Today the Chancellor has recognised that immediate action was required to extend the life of the North Sea.
“The changes announced are bold and a big step in the right direction. Without significant action, the consequences for future activity levels would have been severe.
“This means at a time of low oil prices, high costs and challenging conditions, headline North Sea marginal rates now range between 50%-67.5%, instead of 62%-81% prior to last year’s Autumn Statement.”
But environmental charity Friends of the Earth criticised the decision to introduce tax breaks for the oil and gas industry.
Its senior economics campaigner David Powell said: “With growing calls to divest from fossil fuels, massive tax breaks aimed at squeezing more gas and oil out of the ground show how dangerously out of touch the Chancellor is on climate change.
“The Chancellor should heed the Bank of England’s warning about the threat climate change poses to our financial well-being by ditching support for gas and oil extraction – instead of propping it up.
“Clean power and ending our fossil fuel addiction must be at the heart of energy and economic policy, not just a half-hearted sideshow.”