FT Westminster has obtained a letter from the CBI lambasting George Osborne for springing an unexpected tax hike on North Sea oil and gas producers in the March Budget. John Cridland, director general of the CBI, sent the letter a month or so ago to little avail. But the repercussions of Osborne’s decision are now beginning to play out: Centrica announced on Wednesday that it was downing tools in one of Britain’s biggest gas fields in response to tax hikes. Industry is adamant that the tax hikes will deter investment and I expect their voice will only get louder given that Roger Carr, the chairman of Centrica, has been newly installed in the CBI’s presidential chair.
An extract from the letter by John Cridland, CBI Director-General to the Chancellor of the Exchequer:
“The surprise nature of the tax increase has created fiscal uncertainty not only in the oil and gas sector, but across the energy infrastructure investment supply chain. Concern about instability in the tax regime can spill over as a disincentive to investment in other sectors. As you know, companies have global opportunities for investment and I believe the tax, together with the restriction on decommissioning relief, will weaken investment in North Sea energy production, in particular natural gas production. One consequence is that comparatively lower priced North Sea gas production will likely be replaced with more expensive natural gas imports. This would reduce our energy security and increase gas and electricity prices for all consumers.
“I believe that the Government could start to restore energy investor confidence by:
- Establishing stable tax rates for the remainder of the Parliament, as has been achieved for other business sectors
- Making a commitment that any energy tax change will be consulted on, for example as is done in the Netherlands
- Migrating the impacts of the upstream tax on all natural gas production and older fields
- Looking at the feasibility of a more appropriate ‘trigger price’ for natural gas
- Considering expanding ‘field allowances’ and offering capital uplifts
- Committing to resolve with industry consultation the uncertainty over the liabilities for decommissioning by Budget 2012, to avoid accelerating decommissioning.”