East Anglia firms plea to George Osborne to save ‘dying industry’
- Credit: PA
Industry chiefs are calling on the chancellor to hand a radical tax cut to the oil and gas sector in the wake of plunging oil prices.
George Osborne hinted that he may use his budget in March to roll out an emergency tax break in the face of a sharp drop in North Sea drilling caused by the price of Brent Crude falling below $50 a barrel.
But the move has been with met with a mixed response in the east, with business leaders and analysts questioning whether his plans will go far enough – or have any impact at all.
It comes after businesses sounded the alarm at the end of last year that widespread pay cuts and job losses would follow if the price of oil remained stubbornly low.
Martin Sisley, chief executive of Great Yarmouth-based energy services company Red7Marine, has urged Mr Osborne to 'do something incredible' to save a 'dying industry.'
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'If George Osborne produces an incredible tax change to make the multi nationals say: 'Wow. The UK is really committed to its oil industry, we will invest there', it might turn it around.'
'George Osborne has to say that oil and gas will pay the same corporation tax as every other industry in Britain,' he added.
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'There is nothing to stop him reversing it if oil price goes back to $80 a barrel.'
Oil production has fallen 75pc to 1.2m barrels a day since its last high in 1999.
Industry bodies want the government to provide a short-term 10pc tax cut to the sector, followed by a further 20pc cut in the future. The basic levy currently stands at 60pc.
Mr Osborne announced a series of measures during his autumn statement in December designed to encourage invesment in North Sea oil and gas, including a cut on the supplementary charge on oil firms' profits from 32pc to 30pc.
Mike Allman, sales and marketing director for Lowestoft-based AKD Engineering, said the industry's tax regime should be in line with the corporation tax for every other sector.
He believes the industry has been a 'cash cow' and a 'political football' for too long.
He added: 'Every indication is that the industry are still doing things but I would say that the decision-making is a little bit longer than it has been.'
Meanwhile, James Brabben, researcher at Cornwall Energy, believes a tax break will be welcomed by the industry, but it will need to be coupled with a strong oil price rise to rekindle enough confidence for companies to invest.
'Everyone is waiting to see how long the oil price fall will last,' he said. 'A lot of the oil and gas industry in the UK will see business growth as dependent on the price recovering quickly.
'If oil and gas supply chain businesses already have contracts in place over the year in which the price is low then they can survive, but if they are waiting for new business then it is a different situation altogether. Larger energy companies are only going to invest when the energy prices are higher, so some of the supply chain may face a situation whereby nothing comes through.'
'The emergency tax break will be a stimulus to help the industry at a time when the prices are falling and the industry has been taxed very heavily,' he added.
'To tax them less frees up working capital and it is what the industry has been after for some time. Perhaps they feel they can bargain for it now because they are in a more challenging economic situation then they have been before, and it is a sector that matters to the UK economy.'
However, Mr Brabben remains sceptical as to whether a tax break is enough to spark widespread investment in North Sea development. He believes market consensus is that North Sea confidence can only return if the oil prices begin to rise to above $80 a barrel – something which is not entirely controllable through fiscal policy.
'Investment is really dependent on what is happening globally. Even with a tax break, the global market needs to be in a strong place for investment to be made in the UK market.'
Earliert this month, energy sector trade body, the East of England Energy Group (EEEGR), pressed the government to introduce the recommendations outlined by the Wood Review – a blueprint for maximising the recovery of the remaining oil and gas reserves in the North Sea – to help compensate for the falling price of oil.
Simon Gray, chief executive of the EEEGR, said an emergency tax break could provide the short-term fix the industry needs.
He added: 'We welcome the reductions in the tax, and would like to see 10pc cut immediately as a down payment to be followed by a further 20pc cut further down the line.'