THE embattled North Sea oil and gas industry is set to receive a major tax boost in tomorrow's Budget, with a cut possibly as high as 10 per cent, as George Osborne is warned the sector faces a "watershed moment".

 

The Chancellor has already indicated there will be a reduction in the tax on company profits, the so-called supplementary charge, but Danny Alexander, his Liberal Democrat deputy in the Treasury, signalled it will be a significant one to encourage companies not to turn their backs on the North Sea.

"We have been very clear the direction of travel for tax in the North Sea has to be downwards and that needs to be even stronger given the low oil price we see at the moment," said the Chief Secretary to the Treasury.

In 2011, Mr Osborne, controversially, raised the supplementary charge by 12 points to 32 per cent. In December's Autumn Statement, as the industry faced a plunge in the oil price, he cut it by just two points.

Both the sector and the Scottish Government have called for a full double-digit reversal.

Following a speech in London, Nicola Sturgeon, the First Minister, said there had to be a significant reduction in the supplementary charge to "take away the damage that was done four years ago by that sudden, unconsulted on hike", as well as an allowance to increase investment incentives and an exploration tax credit.

"This is a critical moment for the North Sea," she declared. "If these things are done right...we open up the future where there is up to 24bn barrels of oil that could still be potentially extracted from the North Sea. If we don't do these things, the danger is we will see premature decommissioning of oil fields.

"It is a critical moment and I hope George Osborne will take the right decisions on Wednesday," added Ms Sturgeon.

Sir Ian Wood, the respected industry analyst, warned that if action were not taken, then the sector could lose as many as 100,000 jobs in the next two to three years and fail to recover a significant portion of the remaining petrochemical reserve; possibly as much as five billion barrels.

"I have been in this industry a lot longer than I care to remember and I suspect this(Budget) is the most important. We're coming to a very mature period in time; it's a very expensive region," he explained.

"If we're going to get the 16bn barrels out there, if we're going to maintain anything like the present 380,000 jobs, this is a watershed, step-change Budget with a clear message to the industry to give it the chance to recover its confidence, for the UK Continental Shelf to become more internationally competitive and start looking to investing again."

He added: "This is a watershed moment. I know it's a difficult Budget for the Chancellor but it's absolutely essential that he's prepared to make some significant reduction in the headline rate as well as the investment allowances."

Oil and Gas UK, the industry body, also piled pressure on Mr Osborne, urging him to implement a "double-digit" reduction in the supplementary charge as well as a single simplified investment allowance.

It said the measures were "urgently needed to help re-establish the competitiveness of the UK oil and gas industry".

Malcolm Webb, the body's Chief Executive, added: "The Chancellor is well-informed of industry's current situation and I trust he will do the right thing for this sector and for the country on Wednesday."

Elsewhere, the House of Lords EU Committee has today called for a Ministerial Conference of North Sea countries to ensure an "holistic approach" is developed to manage the environmental challenges and economic opportunities in the North Sea.