A £1.3bn support package for the beleagured oil and gas industry has been welcomed in the North East.
The offshore industry supports more than 50,000 jobs in the region, but a number of firms have either shut or shed jobs in the last few weeks as a result of the collapse in the global oil sector.
Figures in the industry had lobbied hard in advance of the Budget for tax relief from the Chancellor, with some warning that the whole future of the North Sea oil industry was in the balance unless costs could be cut in the near future.
That lobbying was rewarded when Chancellor George Osborne set out a cut in the supplementary charge on oil industry companies’ profits from 30% to 20%, backdated to January.
The move effectively reverses the hike Mr Osborn made in the 2011 Budget when oil prices were much higher.
Mr Osborne said the UK Government will cut petroleum revenue tax from 50% to 35% next year, introduce a “simple and generous” tax allowance to stimulate investment in the North Sea from the start of April and boost offshore exploration by investing £20m in new seismic surveys of the UK continental shelf.
The package is expected to result in more than £4bn of additional investment over the next five years and increase production by 15% by the end of the decade.
George Rafferty, chief executive of NOF Energy, the North East umbrella group for offshore companies, said: “These measures will be welcomed by the oil and gas industry and will support its role as a key contributor to the economy in terms of energy generation, investment and job creation.
“Providing a more attractive fiscal regime for the sector will help re-establish the competitiveness of the UK oil and gas industry and help stimulate exploration, which is a catalyst for all offshore operations, creating extensive opportunities for companies in the supply chain.
“Coupled with the recommendations of Sir Ian Woods’ report, the commitment of the industry to improve efficiencies and control costs, supported by an agile and innovative supply chain, these measures will provide a more sustainable environment for the sector to operate.”
Mark Stephenson, policy and research manager at the North East Chamber of Commerce, said: “These strong measures announced on oil and gas will help the excellent businesses and 65,000 people employed in the sector in the North East and we’re sure our members will welcome the news.”
The North Sea has been hammered by the plunging price of oil, with hundreds of job cuts announced in recent months and fears a drop in investment could lead to the accelerated decommissioning of oil fields.
In the North East, companies including Reef Subsea, DeepOcean, Archer and Flexlife have all either announced job losses or closed down as a result of the oil crisis, while yesterday Newcastle-based British Engines announced a small number of redundancies in the part of its business working in offshore.
Andy Samuel, chief Executive of the Oil and Gas Authority, said: “The Oil and Gas Authority very much welcomes the Chancellor’s decision to reduce the rate of supplementary corporation tax for companies operating in the UKCS from 30% to 20% with immediate effect, and back-dated to the beginning of 2015.
“This is an important step as we continue to work closely with industry and government to secure long-term investment in this vital sector of the UK economy.
“So too is the 15% reduction in petroleum revenue tax from next year and the introduction of a single basin-wide investment allowance which will simplify the current arrangements and incentivise capital investment across the value chain.
“At the same time, the Chancellor’s commitment to provide £20m of funding for new seismic and geophysical surveys in underexplored areas of the North Sea will provide a much needed boost for exploration activity, which has diminished in recent years.
“The sharp decline in global oil prices has magnified the very real challenges facing our industry and underlined the need for continued action and collaboration from industry, Government and the OGA.
“Today’s new fiscal measures together with the rapid creation of the OGA demonstrate the Government’s support for the industry and its recognition that the UK must be in a position to compete effectively with other basins around the world.”
Environmental charity Friends of the Earth criticised the decision to introduce tax breaks for the oil and gas industry, saying the Chancellor was out of touch on climate change.