by Ken McEwen, Ken McEwen Public Relations
I was listening closely as the Chancellor delivered his Budget last month. I had a deadline to produce 300 words for a client’s Budget comment to be published in the next day’s paper.
As he prepared to “commend this Budget to the House”, George Osborne had kept one last-minute announcement up his sleeve. “The price of petrol is a huge burden for families and businesses”, he said, knowing that this would strike a real chord with the public. He then announced the welcome news of a 1p cut in tax and scrapping of the ‘fuel duty escalator’.
Welcome news, indeed, particularly for those of us who already suffer from high transport costs, due to the distances to markets in the UK and Europe.
But, where was the money going to come from?
This was where George Osborne emulated Gordon Brown’s ability to slide unpleasant Budget news in below the radar. While everyone was still rejoicing at the fuel tax cut, he stated that the money would come from higher tax on the North Sea operators.
Yes, George Osborne – the man who had accused Labour of using the North Sea oil and gas industry as a “cash cow” – was going to use the North Sea... as a “cash cow”!
The very next day, Statoil announced that they had put their £10 billion plans to develop the Mariner and Bressay fields on hold. Statoil might be the highest profile project to stop in the immediate wake of the Chancellor’s in Petroleum Revenue Tax hike, but there are dark mutterings about other projects being put on hold and, from the supply chain, there is news of contracts being delayed or cancelled.
Suddenly the renaissance of the oil and gas industry, which really looked as though it was going to extend the life of the North Sea, was back in question.
Now a new study produced by leading oil industry economist Professor Alex Kemp and Linda Stephen at the University of Aberdeen, takes a considered view of the potential impact Osborne’s tax raid could have, over the next 30 years.
The study points out that there are still well over 350 undeveloped discoveries in the UK continental shelf and very many potential incremental projects. Producing these reserves is clearly of huge economic significance for the country. They would reduce our reliance on foreign oil imports, with huge attendant benefits for our balance of payments (currently estimated at more than £30 billion per year) and enhance our security of supply.
But the study shows that the new tax regime could reduce total field expenditure by as much as £52 billion. That level of economic impact raises very real questions about the economic viability of producing some of the North Sea’s known and substantial reserves.
The political view in this country is all-too-often short sighted, both in terms of time and geography. Successive UK governments seem to have had a deliberate policy of downplaying the economic significance of North Sea oil and gas and it is almost as if they have believed their own propaganda.
It looks, once again, as though the politicians have banked on there being no popular uprising against a tax that hits an industry that is Britain’s best kept secret and operates from a city that is 500 miles away from the corridors of power.
That is a very real threat, not just for Britain’s oil and gas industry. The potential economic impact on the UK economy would be hard to overstate. After all, the facts talk for themselves. The oil and gas industry is Britain’s biggest industrial investor, supporting 400,000 jobs across the UK.