The new Scottish Labour leader, Jim Murphy, and the Shadow Chancellor, Ed Balls, called for urgent action in a joint statement issued amid warnings from oil economists that the price is likely to fall further in the coming months.
Murphy and Balls said Chancellor George Osborne should bring forward the industry reforms and investment strategy he announced in his recent Autumn Statement and are due to be finalised in next year’s budget.
Labour made its demand as concern grows about a plunge in the oil price of almost 50 per cent from $115 a barrel in June to less than $60 this month, and predictions that 37,500 jobs are at risk over the next five years.
“Investors need long-term certainty in order to make decisions about exploration and investment in the North Sea. This is even more crucial at a time when oil prices are falling, reducing the market incentive for more exploration and investment,” began the statement, which was also signed by Jenny Laing, the leader of Aberdeen City Council.
“George Osborne undermined the confidence of investors in the North Sea in 2011 with his bungled tax reforms, and the uncertainty he’s created could weaken incentives to invest in the face of shocks to the oil price.
“The Autumn Statement hinted at a new strategy for the oil and gas fiscal regime. It promised the government would set out major reforms to this, but hints and short-term tinkering are not enough for a sector reliant on long-term planning.
“The falling oil price and worrying reports of job losses in the North Sea make an important task urgent.
“George Osborne should say now when he will publish this strategy and should do everything to bring it forward in this difficult time for the industry.”
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In a series of announcements around the statement earlier this month, the UK government pledged to simplify the complex system of tax incentives by introducing a single “basin-wide” tax relief to encourage investment.
Osborne also said he would consult with the industry on measures to stimulate exploration, including financial support and tax credits for seismic surveys in under-explored areas.
Additionally, he announced a two percentage point reduction in the supplementary oil tax, which is charged on oil companies’ profits, from 32 per cent to 30 per cent, to come into force on 1 January.
The extent of the challenge facing the oil industry was yesterday underlined by Professor Alex Kemp, the Professor of Petroleum Economics at Aberdeen University.
Kemp predicted the oil price, which stands at $61 per barrel, could fall further over the next few months and could remain in the $60-$80 range for the next two to three years.
Speaking to Scotland on Sunday, he said: “If you ask me what I think about the price prospect, for the near term and by which I mean the next several months, there is nothing to hold it up and it could come down.
“Why? Because Opec has really abrogated responsibility for stabilising the market. They have said they are not going to meet until June next year, so there is nothing much to keep the price up.
“The way things are, unless Opec has an emergency meeting and does something interventionist, then we could have prices well below $100, in the 60 to 80 range for two or three years ahead.”
The threat of large-scale job losses has presented the first major challenge of Nicola Sturgeon’s tenure as First Minister.
The falling oil price has allowed her opponents to pour scorn on the SNP’s pre- referendum oil price estimate of $113 per barrel, which was used to build the case for independence. Sturgeon has also been criticised by opponents for not reacting quickly enough and for blaming Westminster rather than taking action.
Last week, the First Minister said Holyrood parties should work together to shore up the industry and also called for a further reduction in the supplementary charge.
But Murphy has called on Sturgeon to specify the value of the tax cut she believes is needed to save jobs.
Yesterday, the Chief Secretary to the Treasury, Danny Alexander, suggested the Scottish Government could help by doing more to improve transport infrastructure in the North East and more work could be done to train the next generation of oil staff.
Alexander also defended the UK government’s tax regime and oil recovery strategy, and added that the supplementary charge was on a “downward” trajectory.
“While I can’t make any commitments for future budgets, it definitely needs to be reduced year by year,” said Alexander.
“We don’t and can’t control the world oil price, but those are the right things to be doing at the moment.
A Scottish Government spokesperson said: “As the Scottish Government has long said, what the industry requires is a stable predictable fiscal regime, and that substantial tax incentives are needed to achieve the objective of maximising recovery. Unless the UK Government acts to bring in further measures, the likelihood is some fields will cease production early.”
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