Three election candidates mount attack on ‘arbitrary’ North Sea oil levy

A trio of Shetland election candidates have rounded on the Tory/Liberal Democrat coalition for its “highly irresponsible” and “arbitrary” decision to levy a windfall tax on North Sea oil companies.

Chancellor George Osborne surprised many observers by announcing a £2 billion-a-year levy on the oil industry in last week’s budget statement. That has prompted several oil companies to put multi-million pound investment plans in the North Sea on hold until they have examined the new tax’s impact.

The windfall tax funded a 1p cut in fuel duty and the delay until January of an inflationary increase previously planned by the Labour government. The two candidates representing the parties in coalition at Westminster, Liberal Democrat leader Tavish Scott and Tory hopeful Sandy Cross, insisted it was a necessary measure to ease the pain for motorists.

Norwegian company Statoil announced on Tuesday that it was suspending a £3 billion development on fields south-east of Shetland. Later in the week Valiant Petroleum and Scottish Gas owner Centrica followed suit.

That prompted independent candidate Billy Fox, Labour’s Jamie Kerr and the SNP’s Jean Urquhart to strongly criticise the decision, with all three claiming it could put thousands of jobs at risk. They pointed to the coalition’s January VAT rise, which had added around three pence to pump prices, suggesting the government was “giving with one hand and taking away with the other”.

Though acknowledging healthy profits for many companies amid rocketing global oil prices, Mr Fox said much-needed action to address high pump prices should have been funded by ensuring other corporations pay all of the taxes they ought to be paying to the exchequer.

But Mr Cross said that, while anything which “potentially affects jobs” had to be taken “very seriously”, he believed business in the North Sea was buoyant by comparison with other industries.

“Pretty hard-pressed consumers are going to be benefiting from the reduction in price of petrol at the pump,” he said. “The oil industry is one of the few industries that’s really doing quite well at the moment. You’ve seen a rise of about 40 per cent [in global oil prices], so there’s quite a lot of revenue coming into the business.”

Mr Scott also defended the tax hike, though he did say the UK government should have consulted with industry prior to such a major change. He welcomed confirmation that government representatives were to meet the affected companies, but felt action on fuel prices was vital and the oil industry was making big enough profits to absorb the hit.

After a meeting with energy minister Chris Huhne and other ministers today representatives of industry umbrella body Oil & Gas UK said there had been a full and frank exchange of views.

Chief executive Malcolm Webb said: “The meeting recognised the concerns arising out of the new measures in the budget for gas fields, new field developments, decommissioning, mature fields, infrastructure and the supply chain.

“A meeting is to be arranged between industry and the chancellor of the exchequer. The government wishes to engage with the industry to investigate whether the negative impacts of the tax increase can be mitigated. Furthermore, agreement was reached that the government and industry should work together with a view to ending, by budget 2012, the instability of the UK oil and gas tax regime and the problems of uncertainty around decommissioning reliefs.

“The industry also advised that in late April 2011, it would publish a survey outlining the impact the tax increase would have on its members’ current and future investment if left unchanged.”

Mr Kerr accused the Lib Dem leader of “putting his party before the people of Shetland”. With some senior Lib Dems criticising the policy, the Labour candidate said Mr Scott’s party were “all over the place”.

Mr Kerr said it appeared the policy had “not been thought through properly”. “I think it’s going to damage industry in the North Sea, and therefore there’s a threat of job losses as well. Companies in the North Sea are willing to contribute, but there must be a balance.”

He called for the coalition to reverse its VAT increase. “They’re trying to move the focus onto fuel duty,” he said. “They’re giving with one hand and taking with the other. No matter what they do with the fuel duty, they’ve already upped the price in relation to VAT and I think people can see through that.”

Mr Fox, who spent over two decades working for BP at Sullom Voe, said the tax made things especially difficult for smaller firms weighing up whether to invest in “marginal” fields in the North Sea.

“The question is not whether the oil companies can afford it,” said Mr Fox. “Oil companies will cry foul at every given opportunity, but you cannot put tax regimes in place to attract investment then arbitrarily produce a windfall tax like that.”

He continued: “Oil companies make big profits, but they also make huge investments. If you look at the capital investment ratio, oil companies are extended more so than a lot of normal retail businesses.”

Mr Fox suggested the government should have funded the cut in fuel duty by addressing the “sweetheart deals” on tax given to companies such as Boots and Vodafone. The telecoms giant brokered a deal with HM Revenue & Customs last year which critics including UK Uncut campaigners said allowed it to avoid paying up to £6 billion in tax, though Vodafone insists that figure is an “urban myth”.

Many of those concerns were echoed by Ms Urquhart, who was not surprised that some Tory and Lib Dem voices in Scotland appeared “very nervous” about the impact of Mr Osborne’s decision. “I think it’s an easy hit,” she said. “It’s a kind of cash cow, and while I have absolutely no qualms about taxing business if it can afford it, for the moment we still need oil.”

She acknowledged the industry could be trying to play “hardball”, but she believes Mr Osborne should have made more effort to understand the impact the tax could have on North Sea oil developments.

However Mr Scott said taking concrete action on fuel prices – at a time when a litre of unleaded petrol costs £1.47 and a litre of diesel £1.51 in Lerwick – was the priority for Shetland. “I live, as we all do, within 30 miles of Europe’s biggest oil terminal, yet we pay the most expensive petrol in Europe,” he said. “Therefore it was important that the UK government stopped the 5p duty rise that would have happened.”

He remains “committed to achieving the best results” for the oil industry and pointed to the recently-signed agreement between Total and the SIC relating to the French giant’s Laggan-Tormore project.

“Investment is continuing, and there’s always a balance between the very considerable profits the major oil companies are making and helping families and business with the astronomical cost of fuel,” Mr Scott said.

“The industry have accepted they’ll make more on a barrel of oil in the next five years than they did in the last five years, even with this tax take. I appreciate that some companies are considering their decisions, and the government has to look at that, but any suggestion they’re not making any money is a bit wide of the mark.”

He was backed by Northern Isles MP Alistair Carmichael, who said the treasury would be engaging with industry to ensure there were “no unintended consequences”. He pointed out Mr Osborne had made it “very clear” that exploration to the west of Shetland “will not be threatened”.