MPs back calls for fresh North Sea tax breaks

Published on Monday 29 June 2009 22:03

A POWERFUL House of Commons committee today accused Chancellor Alistair Darling of falling short in the government's tax incentive efforts to stimulate investment in Britain's oil and gas industry.

A report published by the energy and climate change committee claims that up to 50,000 jobs might be at risk because of falling investment in the North Sea.

The MPs state: "It does seem to us that concern that the government's fiscal reforms do not go far enough are genuine and legitimate. The quadruple whammy faced by the industry – of high costs, low prices, lack of affordable credit and a global recession – make this a difficult time.

"We are not convinced that the field allowance and other measures announced in Budget 2009 – albeit welcome – are sufficient to create the competitive environment needed by the industry, nor that they will provide a strong enough incentive to exploit fully remaining resources."

Earlier this year, Oil and Gas UK, the pan-industry trade body, called for increased tax breaks after revealing that capital investment in the industry could plummet from 5 billion to 2.5bn over the next two years as the global recession and the low oil price take their toll on the offshore sector.

Industry leaders warned operating costs could also be cut from 6.8bn to 6bn next year, hitting the 34,000 direct jobs in the North Sea industry and the 234,000 jobs in the wider supply chain. In its report, the committee states: "The oil and gas industry operating on the UK continental shelf currently faces a quadruple whammy of high costs, low prices, lack of affordable credit and a global recession.

"The government cannot unilaterally solve these problems. But that makes it imperative that where it can make a difference – in facilitating credit from banks for example and, even more crucially, in establishing a fair and sustainable fiscal regime – it does so."

The MPs continue: "Unless the fiscal and regulatory regime is well designed and highly attractive, then the likelihood is that the UK may not recover anything like as much of its reserve as would be desirable.

"Declining investment can also hasten the decommissioning of infrastructure which might otherwise have been used to enhance production."

The MPs continue: "Given that the sector predicts falling capital expenditure could destroy at least 14 per cent of those jobs over the next two years, the government must find a way to support UK oil and gas production in the current difficult economic climate."

Malcolm Webb, the chief executive of Oil and Gas UK, said: "We particularly welcome the committee's clear understanding of the urgent need for government action to give the right fiscal and regulatory signals to attract more investment to the UK.

"We are encouraged by the committee's recognition that the measures announced in the last Budget don't go far enough.

"Time is not on our side here. Figures released just last week by the Department of Energy and Climate Change illustrate the scale of the potential fall-off in investment, with exploration – our sector's lifeblood – having declined by more than 75 per cent in the first three months of this year. It is essential that measures such as capital uplift or a general reduction in supplementary charge for new field developments are looked at again as a matter of urgency."