Leaders: Case grows for North Sea oil tax reform

BP has announced cuts of up to 300 of its 3,500 jobs in the North Sea today. Picture: Getty

BP has announced cuts of up to 300 of its 3,500 jobs in the North Sea today. Picture: Getty

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A STARK announcement from oil giant BP yesterday of 300 job losses in the North Sea sector leaves in no doubt the gravity of the crisis facing the industry and the need for urgent action to cut the tax burden and shield investment and capital spending plans.

The BP announcement is far from an isolated case. It follows similar announcements, including by Conoco Phillips and Chevron. On Wednesday Shell said it was dropping plans to build one of the world’s biggest petrochemical plants, a £4.3 billion project with Qatar Petroleum, while Premier Oil announced it was slashing its exploration spending this year by 40 per cent and writing off £197 million.

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Yesterday, Tullow Oil said it was writing off £1.45bn as a direct result of the oil price collapse and is slashing its exploration budget for next year to £132m from around £658m at the start of 2014.

But it is the BP announcement that compels wide attention given the size of its operations and the oil giant’s long commitment to North Sea oil exploration and development.

The plunge in the price of Brent crude has stunned the industry. Hopes that it would be no more than a temporary blip and that the price would quickly bounce back have given way to the prospect of a step change in oil supply and demand, making nonsense of previous price forecasts – by the industry and by the Holyrood and Westminster governments. And the fields off the coast of Scotland are particularly vulnerable because of high and rising exploration and extraction costs, toughening market conditions – and a notably penal tax regime. Earlier this week oil intelligence group Wood Mackenzie warned that plunging oil prices could wipe £2bn off North Sea oil spending projects.

The scale of the challenge – and the need for swift action – should compel politicians both here and at Westminster to leave behind the claim and counter claim over last year’s referendum campaign forecasts. The government has hinted – and UK Energy Minister Ed Davey repeated in Aberdeen yesterday – that it was now considering possible action in the Budget due on 18 March. But given the speed of the oil price fall and the intensifying pressure on companies, Chancellor George Osborne has no excuse for delay and every good reason to provide more immediate and specific guidance on the action he intends to take.

Scotland’s energy minister, Fergus Ewing, released a report last week calling for urgent reform of the North Sea tax regime. Key proposals were an investment allowance to provide support for fields that incur higher costs to develop; a phased reversal of the increase in the supplementary charge introduced in 2011 and an exploration tax credit to help increase exploration and sustain future production.

We said here at the time that these measures made sense – and the case for them is all the more powerful now.

Nudge as good as a drink on beer tax

In THE relentless drive to improve road safety, news that low-alcohol strength beers in Scotland are soaring is to be warmly welcomed. The surge in demand follows the introduction of the lower drink-drive limit in early December. This lowered the alcohol limit for drivers, bringing Scotland into line with many other countries in Europe. Bars have witnessed a higher demand for low-alcohol products, as well as smaller measures, such as 125ml glasses of wine.

Supermarket giant Tesco said that while demand for low-alcohol beer had also risen in the rest of the UK, the increase in sales is three times higher north of the Border. But the switch is no less welcome given the broader benefits to our general health and well-being. And if we wish to reduce the incidence of alcohol abuse and its associated strains on the health service, the government could usefully help with tax breaks on low-alcohol beer.

In countries such as Australia with a pronounced beer drinking culture it is common to see 2 per cent beer on sale on draught in bars. In Sweden, beer below a certain alcohol content can be bought in shops and supermarkets, while higher strength drinks are sold in specialist alcohol shops.

Much has been written about the politics of “nudge” – small, targeted incentives that help us to make healthier life choices.

Here, surely, is an area where the government can deliver a “nudge” of its own. Tax breaks on low-alcohol beer would encourage the industry to increase availability and help the culture change to lighter-alcohol products. This can be promoted without compromising the social ambience of pubs or compromising the pleasure of slaking our thirst.

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