John Swinney calls on George Osborne to reduce tax for the oil and gas industry

The UK Government must consider a “substantial reduction” in the rate of tax for the oil and gas industry in its 2016 budget, John Swinney has told the Chancellor.

In a letter to George Osborne, the Deputy First Minister called for an “internationally competitive tax regime” for the North Sea and said that without urgent action there was a risk the low oil price could lead to premature decommissioning and further job losses.

“It is critical that your government’s tax policies are not a barrier to activity and investment,” he said. “Policy should be reformed to ensure that projects which are commercially acceptable before tax remain commercially acceptable after tax.”

Swinney set out four key areas he says the UK Government must reform to support the long-term future of the oil and gas industry.

As well as the reduction in the headline rate of tax, he called for better incentives for exploration and enhanced oil recovery (EOR), reforms to improve access to decommissioning tax relief and encourage late life assets transfers to prevent early cessation of production, and government loan guarantees to promote investment in the sector.

Mr Swinney said: “The North Sea oil and gas industry is facing substantial challenges. The industry, unions, and the Oil and Gas Authority have all raised concerns about the loss of highly skilled workers, and confidence levels are now at their lowest since records began in 2009.

“The Scottish Government will continue to do all it can to support the sector. It is clear, however, that the UK Government must take urgent action to reduce the headline rate of tax at the March budget. The fiscal regime must not be a barrier to investment and activity in the North Sea.”

“I believe there is also a real risk that the low oil price could lead to critical infrastructure being decommissioned early. That is why I have called on the Chancellor to use his March budget to improve access to decommissioning tax relief and encourage late life asset transfers.”

He said the Scottish Government would continue to do all it can to support the sector through its devolved powers, but that urgent reform of the fiscal regime by the UK Government is needed.

Prime Minister announced a £250m Aberdeen Region City Deal package to support the area on a visit to Aberdeen in January a package of measures to support.

Swinney welcomed the city deal, which he said would make “a positive impact on the local area,” but noted that the Scottish Government was “disappointed at the scale of the UK Government’s offer.”

In last year’s budget, the Chancellor introduced a £1.3bn package of reforms for the oil and gas industry which included reducing the supplementary charge from 32 per cent to 20 per cent, reducing petroleum revenue tax from 50 per cent to 35 per cent, introducing an investment allowance to encourage new investment and providing £20m of funding for seismic surveying to boost offshore exploration.

Rather than measures to delay decommissioning, the Scottish Green Party is recommending speeding it up. In First Minister’s Questions last week co-convener Patrick Harvie said: “Scotland is going to be dramatically more exposed to the risks from the inevitable decline in the fossil fuel industry if we simply kid ourselves that it is not happening already.

“Is it not clear that we face a very simple choice: embrace the opportunities from decommissioning and accelerate activity in that regard as our principal focus, or see those jobs go to bidders from other countries, which will gain the international reputation of being world leaders in the industry?"