IT is not a happy time for the oil industry, with the price languishing at $14 a barrel and the Government threatening extra taxation. Already employment is being hit as a planned oilfield development is shelved. We are accustomed to thinking of oil companies as huge multinationals whose earnings run into billions. Surely they can afford to pay more tax. Yet the oil industry is also the engineering concerns whose equipment is needed for exploration and development and the array of companies who service it.
These are the firms which generate the bulk of the employment in the oil sector and in Grampian region provide one of the highest standards of living and lowest unemployment rates in the UK.
The Government has already shown a predisposition to hit the corporate sector with extra taxes, notably the abolition of the tax credits pension funds receive with their dividends. This contrasts with its strict adherence to the personal tax rates it inherited from the Tory Government. So it is no surprise that the industry should be apprehensive about Labour's plans for increasing the tax take from oil. These include proposals for supplementary corporation tax and an extension of petroleum revenue tax. But there is nothing firm about the plans. A consultation document was promised in the Budget. Two months later nothing has been published, and the indications are that a further delay is likely.
Inevitably this breeds great uncertainties. An unknown threat is invariably a greater problem for business than specific proposals, however hostile these may be. The truth of the matter is that the oil companies do not know where they stand. As a result they have misgivings about what projects are commercially viable. There are plenty of other parts of the world where they can explore and develop oilfields while they wait on the British Government to make up its mind. The sooner, therefore, the better that the Government takes the wraps of its consultative document. Paradoxically it could be the strength of the oil industry's arguments which have caused the delay. With the oil price low and manufacturing employment threatened by the strong pound it hardly seems the right time for imposing a major additional tax burden on this industry which has served Britain well.
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