Sunday Times
GEORGE OSBORNE is working on an emergency tax cut to reverse an alarming decline in investment that threatens the future of the North Sea.
The chancellor told The Sunday Times that “more action” was needed to help the industry after the oil price plunged to $49 a barrel — a 57% dive in just six months.
The collapse has led to a sharp drop in North Sea drilling and a flurry of job and pay cuts. The industry employs 375,000 people and is one of the biggest contributors to the exchequer.
Executives want action to prevent a full-blown crisis. The chancellor said he may use the budget in March to unveil a tax bailout.
“In December, I announced some cuts in our oil taxes and set out the plan for the future,” he said. “I don’t want to pre-empt the budget but I can see that may well involve further reducing the burden of tax on investment in the North Sea.”
Production last year averaged just 1.2m barrels a day — a 75% drop from the 1999 high. Companies say one of the biggest challenges is the tax take, which can run to 80% for old fields. The basic levy is 60%.
A supplementary corporation tax charge was introduced in 2002 by Gordon Brown. Osborne lopped 2% from the basic rate in the autumn statement but the industry says this is not enough.
The proposals under discussion include removing the supplementary tax altogether for new developments, and creating a simpler regime to replace the jumble of allowances and tax breaks that govern North Sea work.
The drilling of exploration wells last year fell to levels not seen since the industry was in its infancy. The French giant Total cancelled a project last week. Several comp–anies, including BP and Wood Group, have cut contractors’ pay.
Osborne said: “We have a record amount of investment in the North Sea. A lot of these investments take a long-term view but there’s no doubt the dramatic fall in the oil price has raised questions about future investment in the North Sea.”
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