North Sea tax rise 'could cost 50,000 jobs'

Up to 50,000 North Sea jobs have been put at risk by Gordon Brown's decision to increase taxes on oil companies, offshore operators warned yesterday. They also claimed that the rise announced in last month's Budget would cost oil companies as much as £8bn and could cut spending on UK exploration and production by up to a fifth.

The surprise tax increase would also threaten the development of marginal fields and hit smaller companies and new investors hardest because of higher financing costs and the inability to claim tax credits until the start of production.

The claims were made by the UK Offshore Operators Association, which represents 30 North Sea oil companies, based on research carried out by Professor Alex Kemp of Aberdeen University. The research showed that the impact of the increase in corporation tax on North Sea oil companies from 30 per cent to 40 per cent will be much more severe than previous estimates. Most other assessments have put the tax hit at around £6bn.

"Taxes are being increased at precisely the wrong time in the North Sea's life," said Beverley Mentzer, chairwoman of UKOOA's fiscal policy group. Because of its maturity, high costs and small fields, the UK CS fiscal regime needs to be attractive if companies are to continue to view the North Sea as a good area to invest in. "It is not realistic to contend, as the Government does, that an additional tax hit of this size, which came without warning, will not have an impact on future investment in the UK continental shelf."

The UKOOA warning follows similar criticism from the oil giants BP and Shell. The new president of the CBI, Sir John Egan, has also attacked the move, warning it will deter investment and had helped "disrupt" the Government's relationship with business.

Ms Mentzer added that the Chancellor could not take billions out of the North Sea without impairing the industry's ability to invest. She warned the result would be an acceleration in the decline of UK oil and gas production.

But a Scotland Office spokesman said there would be no fall in investment or employment as a result of the changes. "The Chancellor's decision was driven by a desire to see investment protected, whilst taking a fair share of the profit derived from this scarce national resource. This is what we believe the Budget changes will do."

He added that the Chancellor's decision to give immediate tax relief for North Sea capital investment meant that companies' post-tax rate of return on projects will generally increase compared to the current regime.