THE CHANCELLOR was forced to defend his surprise tax raid on oil firms yesterday after energy giant Statoil announced that it was suspending a $10bn (£6.2bn) investment in the North Sea in response to the hike.
Statoil, Norway’s top fuel producer, was due to hire contractors in the next few weeks to work on the Mariner and Bressay fields, the biggest development opportunity left in the North Sea with 3.5bn barrels of oil equivalent. But a spokesperson for the firm said yesterday: “We believed that we were able to develop [the fields] but with these proposed tax increases we need to reconsider the project.”
Statoil was due to produce its first oil at the site in 2016. Around 640m barrels of crude oil are expected to be extracted from the sites – carrying a value of tens of billions of pounds at today’s price of $115.34 a barrel.
George Osborne hiked the tax on UK oil profits from 20 to 32 per cent in last week’s Budget, fuelling fears that jobs would be lost and exploration halted, forcing the UK?to rely more on imported energy. Some older oil fields now have a tax rate of 81 per cent.
The government hopes to raise more than £10bn over the course of the current Parliament, to fund an immediate 1p per litre fuel duty cut and a fuel stabiliser to cushion motorists from rising oil prices.
Osborne told yesterday’s Treasury select committee: “I don’t think it is possible to actively consult a business sector on a tax rise in a Budget. I think that would have been very difficult.”
He added: “No industry is going to welcome with open arms a tax rise on it and I would be very surprised if they had, but I would suggest that the current oil price and the forecast oil price certainly makes it very profitable to invest in the North Sea.” Osborne said the government will get in touch with Statoil to talk about the tax raid.
Industry body Oil & Gas UK said it was not surprised by Statoil’s decision. “The tax change has damaged the industry’s confidence and trust in the tax regime and that trust will take a long time to rebuild,” said economics director Mike Tholen.
Oil & Gas UK also contradicted guidance from the Office of Budget Responsibility, whose chairman Robert Chote told the select committee yesterday that the tax increase would have “no significant impact” on investments, adding that Statoil had merely postponed its final decision rather than the actual project.
Osborne added that the Organisation for Economic Co-operation and Development (OECD) has praised his Budget as “pav[ing] the way for a stronger recovery”.