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Minister outlines three-point plan for region

Stop using oil industry as ‘cash cow’, Ewing tells Westminster

Fergus EwingScottish energy minister Fergus Ewing has called on Westminster to stop using North Sea oil as a cash cow and to introduce reforms to the tax regime that will guarantee its future.

Mr Ewing has published a report spelling out how the Scottish Government’s demands for fiscal changes to support investment, encourage exploration and ensure the region remains competitive.

Holyrood’s key proposals are:

  • An investment allowance to provide support for fields that incur higher costs to develop;
  • A phased and timetabled 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.

Mr Ewing accused the UK government of “mismanagement” of oil and gas fiscal policy. He said: “Challenges remain and we must tackle the on-going cost pressures and the fall in oil prices head on.

“We are calling for an investment allowance – as recommended previously by the Scottish Government in 2011 and Scotland’s Oil and Gas Expert Commission last year. This will simplify the fiscal regime and potentially boost investment by between £20 billion and £37 billion – supporting up to 26,000 jobs annually.”

He said the UK Government ‘s 2% cut in cut the supplementary charge rate “doesn’t go far enough” and said the industry needed a clear timetable to fully reverse the increase brought in in 2011.

“After years of using the North Sea as a cash cow the UK Government must finally and urgently take substantive action,” he said. “We believe there is a long term sustainable future for the North Sea and we are committed to using every lever at our disposal. It is time for the UK Government to follow suit.”

Malcolm Webb, Oil & Gas UK’s chief executive, said:  “Sharply falling oil prices are now adding to the significant challenges the UK offshore oil and gas industry was already facing. The current tax regime is one such challenge and a key factor for companies making decisions on investment and activity. All helpful insights on that issue are welcome, so we will certainly respond to the Scottish Government’s request for views and information.

“We would hope this exercise will complement the crucial work already well under way between the UK Treasury and the industry to make urgent changes to the UKCS tax regime in order to both sustain and encourage further investment.  If the Treasury’s new Investment Allowance is to have any impact it must be implemented by Budget 2015 at the very latest. However, with the oil price now at around $50 per barrel, it is becoming increasingly apparent that this measure is not enough and a significant reduction in the headline rate is required.

“We are encouraged to see a growing political and industry consensus around the now pressing need for yet more fundamental and urgent changes to the tax regime.  Oil & Gas UK is committed to playing a fully engaged and constructive part in this important process of reform and looks forward to working with both the UK and Scottish governments and all other stakeholders to that end.”

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