Thursday, 31 March 2011
More Coalition Arrogance
George Osborne's Budget announcement of a £10billion windfall tax on North Sea oil companies is causing problems, not least to Danny Alexander, who represents a constituency in which many oil related workers reside.
Some of Mr Alexander's colleagues have called for his resignation after it was reported he boasted to a group of 100 businessmen that the windfall tax was his idea. Not a smart move from Mr Alexander.
George Osborne, when being questioned by the Treasury Selection Committee (a lengthy video worth viewing) on last week's Budget defended the decision to up the oil taxes by 12% saying: "It's perfectly reasonable and the rate was still significantly lower than in Statoil's native Norway". Do I believe him? No. The Chancellor doesn't even know the amount of duty the Treasury receives from a litre of petrol.
In this area of Scotland there are many whose livelihoods depend on the oil industry and the massive tax hike has created anxiety among them. Statoil and Centrica have postponed projects and Valiant are reviewing a large investment.
Osborne's decision to inflict this tax upon the industry is wrong. It's only recently that the oil price increased and if the unrest in North Africa and the Middle East settled, it's likely the price would drop below $100 a barrel (35 gallons). Oil companies don't make investment decisions based on the current price but make longer term assessments. Today's projects are much more complex from those in the early days of exploration and they are more costly in development charges. The gradual increase in the oil price in the past few years has encouraged the large companies to look at investing in more complicated exploration but this windfall tax has created instability in the sector.
On Tuesday night, in the House of Commons, the government won a vote on the tax hike by 334 to 13, with two prominent Libdems MPs voting against. Both represent constituencies in Aberdeenshire. The vote shows their indifferent attitude towards the industry.
Today Chris Hulme will meet with oil and gas firms to discuss the tax. I doubt if Mr Hulme will make any concessions even if someone mentions the stupidity of Mr Alexander.
To upset the oil producers to this degree - for the sake of 1p on a litre of petrol - is foolish and ill-conceived. These giants are nearly as influential as bankers and should be treated with respect. After all, it's North Sea oil which has been keeping UK Plc afloat for the past 30 years. The Scots treat the industry with respect why can't the Westminster government?
I suggest the coalition's respect quota is kept completely for the bankers.