10,000 oil jobs still at risk despite Budget lifeline

UK government is to cut the supplementary charge on oil industry companies' profits

Updated: 
Budget 2015

A "lifeline" £1.3 billion package of support for the oil and gas industry has been welcomed amid warnings that 10,000 North Sea jobs could still be lost.

Industry body Oil and Gas UK said the measures set out by Chancellor George Osborne in the Budget would "lay the foundations" for the regeneration of the sector, which has been hammered by the plunging price of oil.

The Scottish government said the package is a "step in the right direction" but accused Mr Osborne of "mismanaging" the industry in the past.

Oil and gas leader Sir Ian Wood warned that job losses could still be in the region of 5,000 to 10,000, as trade union Unite called for an end to what it described as an "opportunistic assault" on jobs and conditions.

Environmental charity Friends of the Earth criticised the decision to introduce tax breaks for the oil and gas industry.

The UK government is to cut the supplementary charge on oil industry companies' profits from 30% to 20% and reduce petroleum revenue tax from 50% to 35% next year.

A tax allowance will be introduced to stimulate investment in the North Sea and offshore exploration will be boosted by a £20 million fund for new surveys of the UK continental shelf (UKCS).

This move will bring the headline rates for oil and gas fields down from 62% to 50% and from 81% to 67.5% for older fields subject to petroleum revenue tax.

The package is expected to result in more than £4 billion of additional investment over the next five years and increase production by 15% by the end of the decade.

Wood Group founder Sir Ian had warned that up to 80,000 jobs could be lost if sufficient action was not taken in the Budget.

He said: "I believe the Budget does provide the essential lifeline from Treasury to enable industry to start rebuilding confidence and investment in the UKCS.

"In the short term, the fiscal improvement should give the operators more confidence to continue their commitment during the serious price downturn, minimise the numbers of field decommissionings and shutdowns, and hold their key engineering teams together.

"There will undoubtedly be job losses as the industry works its way through a very difficult price reduction, but these should be in the 5,000-10,000 range out of the 380,000 current jobs, and very significantly less than would have occurred under the previous fiscal regime."

Sir Ian said the package is estimated to increase recoverable reserves from 12 billion barrels to around 15 billion by 2050, before taking account of the petroleum revenue tax change.

Malcolm Webb, chief executive of Oil and Gas UK, said: "Today's announcement lays the foundations for the regeneration of the UK North Sea.

"The industry itself must now build on this by delivering the cost and efficiency improvements required to secure its competitiveness.

"These measures send exactly the right signal to investors. They properly reflect the needs of this maturing oil and gas province and will allow the UK to compete internationally for investment."

John Swinney, Scotland's Deputy First Minister and Finance Secretary, said: "Measures to safeguard the North Sea are a step in the right direction for our oil and gas sector.

"The Scottish Government has been calling for such measures, along with the industry, for some time.

"Today's measures are a glaring admission by the Chancellor that his policy for the North Sea has been wrong and the poor stewardship by the UK Government has had a detrimental impact on our oil and gas sector and the many people who work in the industry.

"It has taken the Chancellor four years to admit the tax rise he implemented in 2011 was a mistake. A heavy price has been paid for this mismanagement."

Derek Leith, head of oil and gas taxation at Ernst and Young, said the package is "positive news" for the industry, with the reduction of petroleum revenue tax likely to boost more mature North Sea fields.

Derek Henderson, senior partner in Deloitte's Aberdeen office, welcomed a "bold and big step in the right direction", while Liz Cameron, chief executive of Scottish Chambers of Commerce, said it is "the start of a process to develop a strong and coherent fiscal plan for the North Sea".

Mairi Massey, oil and gas tax director with PwC in Aberdeen, said: "Easing the very high tax regime won't deliver a complete remedy to the maelstrom going on across the UK continental shelf.

"Oil and gas companies have a significant role to play in securing long-term sustained efficiencies and opportunities for their business and the wider industry."

Unite's Scottish secretary, Pat Rafferty, said economic reform of the North Sea "must go hand in hand" with sustaining jobs and strengthening workers' rights.

He said: "What we cannot contemplate is a deregulated future for the North Sea - a race to the bottom on jobs and standards where workers will have to work longer for less.

"Our challenge to the industry is this: You have got what you asked for, so stop attacking your workers' livelihoods and working conditions."

Friends of the Earth's senior economics campaigner, David Powell, said: "With growing calls to divest from fossil fuels, massive tax breaks aimed at squeezing more gas and oil out of the ground show how dangerously out of touch the Chancellor is on climate change.

"The Chancellor should heed the Bank of England's warning about the threat climate change poses to our financial well-being by ditching support for gas and oil extraction - instead of propping it up."

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