Scotland

Scottish independence: Experts demand lower North Sea tax regime

Oil platform in the North Sea Image copyright PA
Image caption The Campbell Commission said another 24 billion barrels of oil could be extracted from the North Sea but only if there are greater incentives for investment

The North Sea needs a new tax and regulation regime, according to a report for the Scottish government by oil and gas experts.

The independent commission recommended "fundamental change" to encourage more investment and production.

It said the industry had reached a "critical crossroads".

Scottish ministers have promised a more stable tax regime if there is a "Yes" vote but the UK government argued it is better placed to support the industry.

The commission was chaired by Melfort Campbell, the former CBI Scotland chairman.

It was asked to inform the debate over Scottish independence ahead of the referendum on 18 September.

Its report said there was a "major opportunity" to extract a further 24 billion barrels of oil, but only if there were greater incentives for investment.

It warned that the UK continental shelf had become less attractive as oil and gas has become harder to find and more expensive to recover.

The commission called for a "fundamental change in approach" from government, focused on attracting investment rather than controlling access.

"The UK continental shelf used to be like an exclusive nightclub with bouncers on the door only allowing celebrity VIPs access," Mr Campbell said.

"Now it is more akin to a trattoria with waiters touting for business on the pavement outside."

The commission recommended a simplified and more "stable, predictable and internationally competitive" tax regime.

"Lower tax rates with modified allowances could incentivise new developments whilst producing a simpler system" it said.

Mr Campbell told the BBC: "I think government are becoming aware of the fact that that's actually what's going to have to happen for the future.

"There are parts of the tax regime which would be appropriate going forward with some changes.

"But there are other parts where if we are going to target accessing the more difficult oil, the more expensive oil, we're going to have to modify and upgrade the tax regime."

Offshore tax and regulation is a UK responsibility, but much of the UK sector would come under Scottish government control in the event of independence.

The Scottish government has welcomed the report and promised a more stable tax regime if Scotland becomes independent.

The Scottish energy minister, Fergus Ewing said: "What the industry really needs is a stable tax structure.

"Otherwise how can you expect companies to invest up to $10bn unless they know that they're not going to be fleeced as they have been in the UK all too often."

The UK government, meanwhile, has argued that the industry is best supported within a larger economy, less dependent on oil and gas revenues.

Alistair Darling, leader of the Better Together campaign said: "Although production of North Sea oil has fallen over the last 10 years there is still a lot of oil going to be extracted with the right tax regime in place.

"It is the strength of the UK that allows us to give more tax breaks for start up costs and more importantly the massive decommissioning costs which will run to more than £30bn over the next few years.

"With a much smaller economy those costs will be difficult to bear, especially if you are so dependent on volatile oil revenues."

Findings welcomed

Industry body Oil and Gas UK welcomed the commission's findings, particularly the emphasis on urgent fiscal reform.

Chief executive Malcolm Webb said he was also pleased the report recognised the role of oil and gas production in supporting "some half a million jobs".

He added: "The commission's emphasis on the need for informed collaboration both north and south of the border in order to realise the full potential of the UK continental shelf, echoes a widely-held sentiment across our industry."

The Campbell commission has endorsed the key recommendations of an earlier review of oil and gas by Sir Ian Wood for the UK government.

It called for a new regulator to work collaboratively with industry to achieve maximum economic recovery from the North Sea.

In addition, Melfort Campbell's team want a broader definition of the impact oil and gas has on the economy including indirect employment and spending.

This 'total value added' approach is similar to that taken in Norway.

50th anniversary

The commission argues that "fiscal policy making has in the past been influenced by the short-term impact on production tax revenues".

This caused "substantial uncertainty with negative effect on investment", it said.

The commission has called for a rolling five-year strategy for the industry, whatever government is in charge.

If there is a "yes" vote in September, it has suggested a "collaborative approach" between the Scottish and UK governments on taxation.

It also proposed that the new industry regulator should be shared by both governments and "predominantly" controlled by the Scottish government.

The commission wants the regulator to have a formal right of consultation on any plans to change the fiscal or regulatory regime.

The report comes two months before the referendum on Scottish independence, which coincides with the 50th anniversary of the first UK oil exploration licence being issued.

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