Sturgeon calls on Cameron for ‘immediate’ North Sea tax cuts

 

Nicola Sturgeon, MSP,  First Minister of Scotland
Nicola Sturgeon, MSP, First Minister of Scotland

In a clear sign of the increasingly high political stakes for all parties in the run-up to the forthcoming UK general election, Scotland’s First Minister last night called on David Cameron to make ‘immediate’ tax changes to protect Scotland’s North Sea oil and gas sector after BP had earlier axed 300 jobs in Aberdeen.

In a letter to the Prime Minister, Nicola Sturgeon called on him to take urgent action on UK taxation and regulatory measures to support investment and exploration in the sector.

She said: “In my meetings with key industry figures yesterday this message was reiterated, with industry concerned that the investment allowance – expected to be announced in the March budget by the Chancellor would not be nearly enough at current oil prices.

“In our consultations with industry, it has also become evident that an early commitment to reduce the Supplementary Charge rate would have the benefit of providing confidence to the operators, and instilling confidence in the sector, as well as discouraging premature decommissioning.

“In order to significantly enhance the industry’s long-term competitiveness, our discussion paper, recommended that at the very least, the industry requires a reversal of the Supplementary Charge increase implemented by the UK Government in 2011.

“I thus ask that a substantial package of measures be announced without further delay in order to safeguard investment, jobs and the long term sustainability of the North Sea. If this is not forthcoming UK Government policy in relation to the industry will be found seriously wanting once again.”

 

Full text of the First Minister’s letter to the Prime Minister

Dear David,

The oil and gas industry makes a huge contribution to the economy of both the UK and Scotland, and we have built a world class industrial cluster in the North Sea, and now export the skills and services required to support it around the world. In that time over £300 billion of taxation revenues have accrued to the Treasury.

I am however very aware, from the numerous meetings and discussions I have had with a range of companies, industry figures and unions, that the sector is currently facing extremely challenging times.

My Government is taking a range of action to support the industry, but the UK Government must also take urgent action. Reform to the fiscal regime detailed in this letter must not wait until the budget, but must be implemented now and this should include a commitment from the UK Government to a substantial reduction in the Supplementary Charge rate. In addition, faster progress is also required on the establishment of the Oil and Gas Authority.

Further delays from your government on these areas are not acceptable. The North Sea has suffered from an unstable and unpredictable fiscal regime for decades and companies now need urgent action in order to avoid the premature decommissioning of assets and the loss of highly skilled workers.

 

Fiscal Policy

On 8 January the Scottish Energy Minister, Fergus Ewing set out the fiscal measures which we believe should be implemented without delay. These are:

• An investment allowance to provide a simple, stable and more competitive fiscal regime.

• A reversal of the increase in the Supplementary Charge implemented by the UK Government in 2011; and

• Introduction of an exploration tax credit to help increase levels of exploration and sustain future production.

Further details are set out in our Oil and Gas Discussion Paper – Current Challenges and Future Policy, a copy of which I have also enclosed with this letter for ease of reference.

While a limited package of fiscal changes was announced by the Chancellor in the 2014 Autumn Statement, there has been a distinct lack of detail provided on the future reforms. This was made abundantly clear by industry leaders at Tuesday’s PILOT meeting, where industry agreed with our assessment that a substantial cut in the Supplementary Charge is urgently required.

In my meetings with key industry figures yesterday this message was reiterated, with industry concerned that the investment allowance expected to be announced in the March budget by the Chancellor – would not be nearly enough at current oil prices.

“In our consultations with industry, it has also become evident that an early commitment to reduce the Supplementary Charge rate would have the benefit of providing confidence to the operators, and instilling confidence in the sector, as well as discouraging premature decommissioning.

“In order to significantly enhance the industry’s long-term competitiveness, our discussion paper, recommended that at the very least, the industry requires a reversal of the Supplementary Charge increase implemented by the UK Government in 2011.

I thus ask that a substantial package of measures be announced without further delay in order to safeguard investment, jobs and the long term sustainability of the North Sea. If this is not forthcoming UK Government policy in relation to the industry will be found seriously wanting once again.”

 

The Oil and Gas Authority

In order to prolong the longevity of the industry and maximise economic benefits, it is important that the UK Government maintains the momentum for regulatory change in the oil and gas sector.

The Scottish Government has endorsed the findings of Sir Ian Wood’s Maximising Recovery in the UKCS review, and in particular his recommendation for a stronger, more effective regulatory body.

We welcomed the long-awaited announcement of the appointment of the new Chief Executive of the Oil and Gas Authority (OGA), Andy Samuel. However, it is imperative that progress moves at a much quicker pace so we can start to reap the benefits that an effective, well-resourced oil and gas authority has the potential to bring for the industry and the nation.

This is particularly important given the current pressures being felt by the industry. The Scottish Government was pleased to see Aberdeen confirmed as the headquarter location for the OGA in June, and the suggestion that there will be an increase in resource from 59 to 145 FTE staff by 2019 is welcome as it helps address the serious understaffing identified by Sir Ian in his review. The challenge is to ensure the appropriate level of expertise and knowledge is secured.

However it is absolutely critical, given present circumstances, that appropriate resourcing of the new OGA is put in place swiftly, with the correct level of industry experience and expertise. It is clear that industry is concerned about the delays in this process.

As Malcolm Webb of Oil and Gas UK has pointed out, it looks as if it will take until summer 2016 before all the processes around setting up the OGA are competed. I agree with him that this is far too long and I would appreciate an explanation of why this process is taking so long and what action you will now take to speed up the process.

The implementation of the Wood Review must be taken forward effectively and with increased speed and resource in light of the growing challenges facing the industry.

 

Energy Jobs Taskforce

My Government is taking action where we have the powers to do so. Yesterday I announced that a new Energy Jobs Taskforce will be established to support Scotland’s oil and gas sector. Chaired by Scottish Enterprise Chief Executive Lena Wilson, it will report to the Scottish Energy Advisory Board and will focus on supporting jobs across the energy sector, with an initial emphasis on the oil and gas sector. The Taskforce will ensure that partners are working across the sector both to maintain jobs and to mitigate the potential impact of any losses.

I also announced a guarantee for Modern Apprentices (MAs) in Scotland’s oil and gas sector to ensure that any faced with redundancy will be offered alternative employment or continued off-the-job training pending alternative employment. Additional support will be made available specifically to the oil and gas sector to enhance the offer available through the Adopt an Apprentice programme, which provides incentives to companies to re-employ MAs who have been made redundant.

It is absolutely critical that Scotland retains and grows where possible the level of employment, skills and talent which support our internationally competitive energy industry, and that the current challenges do not result in the loss of jobs which the industry will require again in the future once conditions improve.

I look forward to news of urgent action and less prevarication by your Government on both the oil and gas fiscal regime and the Oil and Gas Authority.

Best wishes,

Nicola Sturgeon

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