Chancellor George Osborne claimed yesterday that investment in the North Sea oil and gas industry would increase despite his decision to increase offshore companies’ tax bills.
He delivered the astonishing forecast during a two-hour grilling on his Budget proposals at a meeting of the Commons Treasury committee.
Under pressure from MPs, he insisted: “I think with the current oil price, the prospects are for increased investment.”
He claimed that was because he had promised that if the oil price – now just over US$114 – fell to below $75, he would phase out the increase and reintroduce the hated fuel duty escalator designed to push up the price of petrol and diesel at forecourts.
Mr Osborne was cross examined in particular about Statoil’s decision to put its proposed £3billion Mariner field investment on hold.
Caithness, Sutherland and Easter Ross Liberal Democrat MP John Thurso told him: “The headline in the most important newspaper in my part of the world, the Press and Journal, this morning was the cancellation by Statoil of their investment.”
Mr Osborne acknowledged the committee’s interest in what had happened, but said: “They have not cancelled. They just want to talk to us about their investment plans.”
He said he was imposing a total tax rate of 62% on the Norwegian oil giant, and pointed out that as it already paid 78% to the Norwegian government, it was “certainly used to dealing with high tax regimes”.
But SNP Treasury spokesman Stewart Hosie said: “The industry doesn’t appear to be joking when it talks about 40,000 new and existing jobs under threat.”
Mr Osborne promised there would be talks with Statoil but insisted he would not have been able to find the money to pay for scrapping the fuel duty escalator and cutting 1p off tax on petrol and diesel if he had not found substantial resources elsewhere by raising revenue from oil companies.
He said: “It is perfectly fair to say you should not have increased these taxes on the North Sea and you should not have changed the plans for the fuel duty increases.
“But you can’t have your cake and eat it. If you want one, you have got to have the other.”
Earlier Treasury Budget, tax and welfare managing director Edward Troup said officials would meet Statoil executives next week.
He said investment, running at £4.8billion when former chancellor and prime minister Gordon Brown imposed the last tax rise on the industry, went up to £6billion a year afterwards.
He hinted that if things went wrong, oil companies could be offered tax perks along the lines of a “field allowance” to encourage difficult projects like those in deep waters west of Shetland to go ahead.