Oil industry repeats warning

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Oil & Gas UK, the trade body representing North Sea producers, has issued a stark warning that unless there is a change in Coalition tax policy, at least 25 projects, collectively worth £12 billion, are unlikely to go ahead.

In an update of its regular Activity Report, the trade body says the projects likely to be scrapped account for over a billion barrels of oil. In addition, the lives of at least 20 producing fields will be shortened by up to five years.

This year the Treasury is on line to take £13.4 billion in taxation from the North Sea – a record amount.

In March, the Chancellor raised the “supplemental” levy on profits generated specifically in UK waters from 20 per cent to 32 per cent – 60 per cent increase. This is addition both to corporation tax and (in older fields) Petroleum Revenue Tax. The marginal rate on North Sea earnings is now between 62 percent and over 80 per cent, depending on the field.  This compares with 25 per cent in Irish waters.

The bulk of new investment in the North Sea comes from small, independent oil firms – not giants such as Shell and BP, which have largely pulled out of the sector. These small companies are the hardest hit by Mr Osborne’s tax raid. As a result, new projects are being put on hold.

SNP Westminster Energy spokesperson Mike Weir MP said:

“Even the Chancellor must now recognise the immense damage that his ill conceived tax grab will have, and the Treasury must step back before it is too late.

“We need, as the First Minster called for this week, a progressive system that puts more of the tax burden on the gatherers of North Sea oil and gas rather than the investors.

“There is no clearer demonstration of the need for Scotland to have responsibility for our North Sea than the misguided tax plans of the Tory and Lib Dem government.”

In another development, UK Business Secretary Vince Cable has accepted the logic of transferring power over corporation tax to the Scottish Government.

In an interview in the latest New Statesman magazine, he was asked his opinion of transferring corporation tax to Holyrood. Mr Cable replied: “I think the logic of that is irresistible, if you have a devolved system.”

Mr Cable’s comments follow the First Minister’s call for corporation tax to be included in the list of powers devolved to Scotland in the Scotland bill.

Responding, SNP Finance Secretary John Swinney said:

“These comments are a huge step forward for the UK Government and I strongly hope they reflect new thinking from the coalition following the re-election of the SNP as a majority Government with an overwhelming mandate for the issues set out in our manifesto, including devolving corporation tax.

“Devolution of corporation tax to Scotland has a key role to play in Scotland’s economic recovery a fact recognised by the Liberal Democrat Steel Commission which made a clear call for corporation tax to be devolved.”