Experts call for change in North Sea tax regime

Radical fiscal and regulatory changes are needed in the oil and gas industry to make sure the remaining resources in the North Sea provide the greatest economic benefits, a group of experts have warned.

The oil and gas sector is at a critical crossroads says the group. Picture: Getty

They called for “fundamental change” to encourage more investment and production, warning the industry had reached a “critical crossroads”.

The Independent Expert Commission on Oil and Gas was set up by the Scottish Government to explore how the value of the industry could be maximised and how the future of the UK continental shelf (UKCS) could be secured.

Its report has called for a change in “stewardship philosophy”, by overhauling the tax and regulatory regimes.

It said the government should move towards a tax regime that was “stable, predictable and internationally competitive”, adding: “Lower tax rates with modified allowances could incentivise new developments whilst producing a simpler system.”

Chairman Melfort Campbell said: “Within the current regime and climate of declining investment, we are seeing inadequate returns for operators, significantly reduced income for the Treasury and the loss of the added value through the supply chain and into the wider economy. The commission concludes that government must recognise that policy must swiftly change from seeking to control access to a sought-after resource to one where investment has to be attracted by positive features.

“In other words, the UKCS used to be like an exclusive nightclub with bouncers on the door only allowing celebrity VIPs access. Now, it is more akin to a trattoria with waiters touting for business on the pavement outside.”

The commission has backed calls from retired oil tycoon Sir Ian Wood for a new regulator to oversee the industry.

Scottish energy minister Fergus Ewing said: “The Scottish Government agrees with the commission that a fundamental shift in the way oil and gas policy is formulated is long overdue, and that basing policy on Total Value Added is central to fulfilling the North Sea’s potential.

Malcolm Webb, chief executive of Oil & Gas UK, said: “This report is a constructive and intelligent addition to the knowledge base concerning our industry’s contribution to the UK economy.”

Former chancellor Alistair Darling, leader of the pro-Union Better Together campaign, said: “Although production of North Sea oil has fallen over the last ten years, there is still a lot of oil going to be extracted with the right tax regime in place.”