The Chancellor's decision to raise the tax charge on North Sea oil firms in his Budget in March came as a "huge shock" to the industry, a Parliamentary committee heard yesterday.
Malcolm Webb, the chief executive of Oil & Gas UK, said offshore firms had been caught off guard by George Osborne's decision to up the supplementary charge to 32 per cent from 20 per cent. The move came against the backdrop of record-breaking oil prices amid increasing geopolitical tension in the Middle East, and Mr Osborne said companies would pay less at times of low oil prices.
But speaking before Parliament's Energy and Climate Change Committee, Mr Webb said the move was "very, very damaging for investor confidence". He was joined by Paul Warwick from ConocoPhillips' UK arm, who said the "tax change has really thrown us off course".
The committee also heard from the Energy Secretary, Chris Huhne, who defended the Chancellor's move. "I recognise that circumstances have changed in the oil market, that we have had a very substantial increase in the oil price," he said. "As we know, last year's price for Brent crude was about $80 [per barrel]. We are now looking at a price of more like $125."
The economic secretary to the Treasury, Justine Greening, added that tax would ease back to 20 per cent if oil prices fell below a certain trigger level, saying that in such circumstances the Government "would not want to see investment damaged".
But Mr Webb urged ministers to take care not hurt the industry. "Our primary message... was that this increasingly mature sector needs careful handling," he said after giving evidence.
"It cannot take shocks such as the recent tax hit ... these reduce the UK's relative attractiveness for investors who will now look to rival opportunities overseas where their capital will earn better returns."