Industry angry over impact of tax grabIt is a stupid decision, says oil boss

‘Hypocritical chancellor could cost North Sea 40,000 jobs’

By Ross Davidson

Published: 25/03/2011

The offshore industry has warned that tens of thousands of jobs could go because of George Osborne’s £10billion North Sea tax grab.

The chancellor was accused of hypocrisy and a blatant U-turn last night after using his second Budget to target the sector he claimed the former Labour government had used as a “cash cow”.

Top Scottish entrepreneur Sir Ian Wood said Mr Osborne had failed to consult oil and gas companies before revealing his shock plan to fund a 1p cut in fuel duty from oil industry revenues.

The boss of one North Sea operator predicted the move could cost more than 40,000 jobs.

And industry body Oil and Gas UK (OGUK) said the chancellor had made a “stupid decision” that would leave a permanent scar on the North Sea sector.

Producers and the service firms that rely on them for business were reassessing their operations on the UK Continental Shelf last night, while many saw their share price continue to slide.

During Wednesday’s Budget speech, Mr Osborne said offshore companies’ greater-than-expected profits had led to his decision to use North Sea tax to recoup the £9.4billion the government would lose through the fuel duty cut.

The oil and gas industry’s tax bill for the next financial year alone is expected to be £13.4billion, compared with £8.8billion this year.

The chancellor was described as either “ignorant or a hypocrite” last night as north-east politicians rounded on him.

On previous visits to Aberdeen as shadow chancellor Mr Osborne voiced support for the oil and gas industry and criticised his predecessor, Gordon Brown, for focusing in the short term on squeezing the most revenue out of the sector and risking future investment.

Sir Ian, chairman of the Aberdeen-based energy-services giant Wood Group, which employs nearly 30,000 people worldwide, said the Budget announcement was a “real setback” for North Sea production.

“We are operating in a very competitive international environment and there seems little doubt that this change will reduce investment in the North Sea over the next two or three critical years,” he said.

He also said the chancellor had not spoken to the industry before making his decision.

“It would have been so much better if government had consulted and given the industry the chance to express views,” he said.

“The change will have repercussions for Aberdeen’s economy both in the short and long term.”

OGUK economics director Mike Tholen said the coalition government at Westminster had followed its Labour predecessor and “leaped” to tax the industry on the back of rising oil prices.

“It is a stupid decision,” he said. “If they had sat on their hands, they would have a larger bounty from us in the long run. It will leave a permanent scar on the industry at this stage.

“There will definitely be an impact on employment, which was a wholly avoidable situation. When you look at the projects that could falter, we are talking tens of thousands of jobs.”

Jim House, managing director of operator Apache North Sea, said the number of job losses could run to more than 40,000.

He said: “Every £1billion invested supports 20,000 jobs in the sector and, if they are looking to increase tax receipts by £2billion a year, there will be close correlation in the loss of investment profiles in the industry.

“It follows that this will put upward of 40,000 jobs at risk.”

Valiant Petroleum chief executive Peter Buchanan, chairman of the Association of British Independent Oil Exploration Companies, warned the move could drive up oil prices as North Sea production declined and the UK imported more oil and gas.

He said the North Sea supplied more than half the UK’s requirements but the future of the region depended on investment for the exploitation of smaller fields.

Alistair Birnie, chief executive of industry body Subsea UK, said: “We are greatly dismayed by the apparent lapse of memory that the chancellor has of his own words. Successive governments seem to have extreme difficulty in grasping the fundamental importance of a consistent and fair tax regime across the energy industry.”

Mr Osborne’s Cabinet colleague, Michael Gove, had been due to visit the north-east yesterday, but cancelled the trip at the last minute.

Reader's Comments

This is blatant nonsense coupled with a bit of schoolboy logic to come to a figure of 40,000 job losses. The oil industry makes enough profit and can easily afford this. So SIW is a "top entrepreneur"? In which universe?
Spymaster Moray
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Scotland paying for middle England to have an easier time of it, no change there then.
alan reid
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It's about time that the oil industry contributed more to the UK economy. They should also be investing more in Aberdeen so that they leave a positive legacy. And there's lots of oil in Libya if they don't like it here!
Robin Harwell
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More tax from Westminster, could cost 40,000 jobs, says Oil bosses, did not consult says Sir Ian Wood, did Osborne consult with the pensioners before he cut their winter fuel allowances? I guess its all part of the Union dividend.
Tam Glen
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Idiotic is the only way you can describe this. The UK government should be putting money into the Oil and Gas industry to encourage growth not grabbing more money out of it. As usual the North East of Scotland is the cash cow for the Central Belt and middle England.
Sasha Molyneux
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Osborne is hardly going to tax his chums in banking, is he?
Richard Fraser
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If the oil companies do not want to operate in Scotland then a Scottish company should be created taking back these fields which are mismanaged,under developed or new for the people of Scotland. Just like most other oil producing countries which have there own national oil companies.
name withheld
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What these operators are doing is criminal. They are making obscene profits . They are driven by share prices, bonuses and budgets. Yes the supporting company’s like W.G. may well suffer. What they fail to tell you is that’s it’s all still in their favor. This will now give them the justification and opportunity to further reduce the workforce, strangle the support company’s and undertake the replacement of UK labour to cheaper foreign labour, which coincidently has been their plan for quite a while. So don’t blame it all on the chancellor because he knows as well as the rest of us that the profits made by these North Sea operators, now and for the foreseeable future, are huge. Jim house, I bet is delighted that the chancellor has given him yet another opportunity to make as many of his employees and contract staff redundant, and or cut wages, and hide behind the smoke screen of tax conditions in the UK. Of course it will all be blamed on the tax hike, and how difficult it is to make a few billion pounds profit blah blah. sob sob bubble. Yes Sir Ian Wood is correct, it will obviously, effect the contract company’s, as they, not the operators, will eventually have to shoulder the burden, working to ever tighter budgets while the operators continue to profit excessively . Things would have been way better if we had gone down the same path as Norway as far as our oil industry is concerned. But Margret Thatcher managed to derail that one.
Stag Dad
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But we do have national oil companies in Scotland, there is for example, TAQA of Abu Dhabi, and KNOC (Korean), which a few months ago took over DANA and lots more besides, except our own of course. Sea North Oil, open for exploitation by all, especially London Governments.
Michty Me
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Michty, so let's tax them more then.
Don Duncan
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I await with interest these 40,000 job losses. I have a £ here to match your pinch of whatever that says they will never happen (due to taxation at least).
David Sutherland
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David. I'd have £10 if anyone would take a bet, but it a stupid figure. The oil industry is always crying wolf.
Don Duncan
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Stag's comment re Norway is good and valid. Statoil, majority owned by the Norwegian Government, is now the worlds 13th largest oil company, with a market capitalisation of about £50 billion. To compare, our 'giant' Wood Gp weighs in at about £3 billion. And of course the Norwegian folk get all the profits.
Michty Me
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Get a grip. This is not all about money really. This way the London government can stand back and blame the oil production sector for fuel price rises instead of the taxman and still get the money to blow on all the luxuries they have always enjoyed. Fuel users beware...!!
Paul Fenna-Roberts
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Get a grip. This is not all about money really. This way the London government can stand back and blame the oil production sector for fuel price rises instead of the taxman and still get the money to blow on all the luxuries they have always enjoyed. Fuel users beware...!!
Paul Fenna-Roberts
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And Don, perhaps our Government could have that power, it works well in Texas, Alaska, Alberta and oil producing places like that.
Michty Me
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how many jobs will be created with the reduction in corporation tax? - or is that not a help, like the government said it would be? - no wonder we don't trust politicians and big business - can we just have the honest truth - no threats - nor brinkmanship. One can dream, eh.
Philip Thompson
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In the immortal words of Private Jones, "They don't like it up 'em, Mr. Mainwaring!"
harvey freshwater
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Lovely to see Malcolm Webb, et al, bleating on about lack of consultation. What goes around...
harvey freshwater
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It makes a refreshing change from Stewarty and the 'vitally important construction industry' greetin' their little eyes out.
harvey freshwater
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Poor SIW, the Chancelor did not ask for his views or opinion. What a dent in his arrogance. Has anybody been asked their opinions on whether we like the cuts being made, or in fact anything at all. But when it comes to the rich oil barrons, they must be heard because they are Oh so important. Or is it just that they might not have the same high profits, and would rather lay people off. Then again SIW is an expert in scaremongering. Days of gloom and doom for Aberdeen. Poor wee soul, don't you just feel so sorry for him.
minnie mo
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This is just more Socialism. Take money from the workers to support the nonworkers and the feckless public servants. The reward for being a successful industry in the UK, whether oil or supermarkets, is to attract additional taxes. No wonder were on the decline..rolling down hill like a snowball headed for he11.
Alan Craigie
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This is just more Socialism. Take money from the workers to support the nonworkers and the feckless public servants. The reward for being a successful industry in the UK, whether oil or supermarkets, is to attract additional taxes. No wonder were on the decline..rolling down hill like a snowball headed for he11.
Alan Craigie
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SIR IAN WOOD ASKS FOR PREPAYMENT METER IN RUBISLAW DEN- UTG SAVED
Lynda Foreman
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Sasha Molyneux, I think you have been asked before on these pages but you have disappeared without answering. Are you an SNP ACC councillor by any chance?
Lynda Foreman
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SAVE UTG AND PROTECT THE TULLOS DEER - VOTE HOLYROOD LABOUR
Lynda Foreman
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The oil and service companies should be paying a lot more in tax.
Alistair Cowie
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