Committee of MPs criticise £2bn oil and gas tax 'raid'

oil platform, North Sae An extra £2bn will be raised annually from new North Sea oil taxes

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A committee of MPs has criticised the UK Treasury's decision to increase a levy on the oil and gas industry calling it an "opportunistic raid".

The Energy and Climate Change Select Committee report said the way in which the £2bn hike was announced may have undermined investor confidence.

The MPs suggested the UK government should now attempt to do more to restore industry confidence.

The SNP's Mike Weir said the committee was right to criticise the move.

The report said: "If the government is serious about maximising production from the UK Continental Shelf (UKCS), it needs to consider the long-term impact of changes to the tax regime on investment.

"The evidence on the impact of 2006 increase in the supplementary tax charge on oil and gas production in the North Sea is inconclusive, but there is a clear need to sustain investor confidence by avoiding surprises, such as the further increase announced in the 2011 Budget.

"It is not sensible to make opportunistic raids on UKCS producers.

Report's key points

17. We recommend that work on energy security should focus on achieving system resilience - both to short term shocks and longer term stresses - as well as focusing on individual components of the energy system.

29. We recommend that the government publish a transparent set of energy security indicators as promised in the Strategic Defence and Security Review.

42. If the government is serious about maximising production from the UK Continental Shelf, it needs to consider the long-term impact of changes to the tax regime on investment. The evidence on the impact of 2006 increase in the supplementary tax charge on oil and gas production in the North Sea is inconclusive, but there is a clear need to sustain investor confidence by avoiding surprises, such as the further rise in the 2011 Budget. It is not sensible to make opportunistic raids on UKCS producers.

154. Delivering energy security - keeping the lights on, buildings warm, vehicles moving, businesses operating and electrical appliances running - is a crucial aspect of DECC's work. Achieving this goal requires a reliable supply of primary fuels, a secure delivery system and smart and efficient usage by consumers. Failure in any one of these three areas is likely to mean that energy needs go unmet.

"The government must build a more constructive relationship if it is to restore industry confidence and maximise the benefits gained from the UKCS."

In his March budget, Chancellor George Osborne said he was taking the additional £2bn each year in tax from the offshore energy sector by raising its supplementary levy on corporation tax from 20% to 32%.

The reason for this was to pay for a cut in expected revenue from petrol and diesel prices.

The SNP's Westminster Energy spokesman Mike Weir said the UK government needed to stop regarding Scottish oil as a "cash cow" and realise how important the offshore industry was for jobs across Scotland.

He added: "Last week the prime minister came to Scotland to hail the potential in the new oil and gas fields off the western approaches, but the UK government is hindering these developments and holding Scotland's energy sector back.

Referring to last week's scrapping of the Longannet carbon capture project, Mr Weir said: "The UK Treasury has banked over £13bn from Scotland's oil and gas in the course of this year but refused even a tenth of that in return to secure the future of the clean coal industry in Scotland."

Shadow Energy Minister Tom Greatrex said the new taxes showed that the UK government had been "short-sighted".

The Labour MP for Rutherglen and Hamilton West added that ministers needed to work with the sector and "not against it".

The committee's report also said that the UK must increase current amounts of gas storage to reduce the impact of energy price spikes.

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It warned that the UK could only store 14 days of gas supply, compared with France's 87 days and Germany's 69 days.

The report added that the new electricity generation currently planned or being built would fill the looming "gap" in the power system as ageing plants close up to 2018.

But the MPs called for more efforts to promote greater energy efficiency in order to reduce demand, and warned the government against relying on power companies to deliver the message on saving energy as consumers did not trust them.

Energy Minister Charles Hendry said: "Energy security is right at the heart of the coalition's energy policy.

"A diverse and increasingly low-carbon energy mix is our best insurance policy against volatility in fossil fuel prices.

"We are reforming the electricity market to encourage investment in new power stations.

"We have consented proposals for gas storage facilities that more than double our capacity and have legislated to give Ofgem the power to incentivise the gas market to ensure secure supply.

"We have also legislated for a mass roll-out of energy efficiency measures across Britain's housing stock through the Green Deal."

Friends of the Earth energy campaigner Paul Steedman called for investment in "clean home-grown power" and a reduction in the energy which is wasted.

He said: "MPs are right to warn that keeping us hooked on power stations burning imported gas leaves us open to price spikes - and missed climate change targets.

"The Big Six energy firms have kept us dependent on gas and coal for far too long - the government must stand up to the power giants by backing the committee's call for tougher emissions limits and investing in a clean energy system."

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