George Osborne risks credibility with 'bad for business' tax raid, say MPs

CHANCELLOR George Osborne's £10 billion tax raid on the profits of North Sea oil and gas companies risks undermining the Government's credibility on taxation, MPs have warned.

The Commons Treasury Committee said yesterday that Mr Osborne's Budget announcement last month that he was raising the levy on the firms to fund a cut in fuel duty had come less than a year after he promised the industry a stable tax regime.

It said the measures set out in the Budget on energy prices - from scrapping the fuel duty escalator to the introduction of a carbon "price floor" to encourage cleaner energy sources - "lack overall coherence" as a package. The decision to increase the supplementary oil and gas levy by 12 per cent drew a furious response from the industry, which complained there had been no consultation. Some firms warned they would now be reviewing their North Sea investments.

The committee said that the way the issue had been handled "may weaken the Government's credibility in seeking to establish a stable tax regime in this and other areas".

It added: "Such reversals of policy in the absence of changes of circumstances that would warrant them is bad for business confidence and the credibility of Government policy-making."

The committee also warned that the markets needed to be confident the Chancellor was committed to seeing through deficit reduction plans, amid concerns his planned spending cuts "may prove too difficult to implement".

Ministers were reportedly furious when it emerged last year that the Cabinet Secretary, Sir Gus O'Donnell, had been working on a so-called "plan B" in case Mr Osborne's austerity programme plunged the economy into a double-dip recession.

The committee said that it was essential that any such discussions within government should not be made public.

"Markets need to be confident that the Government is committed to its fiscal policy.A Government which talked of a plan B as a substitute for that policy would prejudice that confidence," it said.

"A responsible chancellor is likely to have contingency plans … those plans should not be made public unless and until they are needed."

The committee said that the full impact of Mr Osborne's plans had yet to be felt.

"One concern expressed to us was that future spending cuts may prove too difficult to implement," it said.

The committee also cast doubt on the Chancellor's plans to revive enterprise zones, saying that the evidence was "unsure" about the extent to which they would contribute to economic growth.

And it warned that help in the Budget for first-time homebuyers could simply push up house prices if it did not also lead to more housebuilding, taking "house purchase out of the reach of more people".

French oil giant Total, the North Sea's third largest operator, announced last month that the company was reviewing its annual 170 million spending on exploration in the British sector of the North Sea as a direct result of the controversial tax rise.

The Norwegian energy giant Statoil has already confirmed that a planned 6.2 billion investment on two new field developments off Shetland has been put on hold.