North Sea oil firms revolting over £2bn windfall tax

The Government (and the OBR) says the new tax won't affect investment or jobs. But the industry begs to differ...

by James Taylor
Last Updated: 19 Aug 2013
In last week's Budget, Chancellor George Osborne conjured up a few quid for a fuel duty cut by effectively whacking a windfall tax on North Sea oil producers - the rationale being that since they were making so much money from higher oil prices, it was only fair to pass some of this onto consumers. But although the Government's own spending watchdog seems to think there'll be 'no significant effect on investment', the firms targeted apparently disagree: energy giants Statoil and Centrica have both put their investment programmes on hold while they mull over the implications, and others are threatening to follow suit. The question is: are they bluffing?

It's hardly surprising that the industry is upset about the sudden imposition of an unexpected tax that directly affects their bottom line. And we were always going to see a degree of special pleading as a result. However, Osborne is still likely to be nervous. Norwegian firm Statoil, which is part-way through a £3bn investment programme in the North Sea for fields that won't come on stream for another five years or so, has now said it will 'pause and reflect' on the implications of the new tax before it spends any more money. Today, the BBC is reporting that Centrica has adopted a similar 'wait and see' approach, while Valiant Petroleum has apparently cancelled a £93m project.

Malcolm Webb, who's the chief exec of the industry lobby group Oil and Gas UK, says the tax has forced companies to 'rethink their plans to step up investment in the next few years' - which not only jeopardises tens of thousands of jobs, but also our future energy security (since we'll be more and more reliant on imports). Of course, he would say that. But it's undeniably true that the economic argument for investing in the North Sea - as opposed to, say, Norway - has now changed. So it's perfectly sensible to run the numbers again (albeit this is probably as much about political posturing as practicality).
 
The Office for Budget Responsibility's forecasts apparently assume that the tax won't have any significant effect on investment, boss Robert Chote told a Treasury Select Committee yesterday - it reckons that with the oil price at its current level, it will still make economic sense to invest; they'll still be making fat profits, just not quite as fat as before. With some 40,000 jobs at risk, according to some estimates, Osborne will be desperately hoping that Chote is right...

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