Energy Secretary Ed Davey has announced the "most amazing, significant changes" to the UK oil industry since its foundation - empowering the new regulator to fine wayward oil firms up to £1 million and revoke their licences.

The Oil & Gas Authority (OGA) was founded last year to encourage collaboration among the oil industry to boost production and safeguard jobs, and today it has been given "the teeth that it needs to deliver on its mission", the Lib Dems said.

The Government has also outlined the design of the new Investment Allowance, which will be introduced in the Finance Bill 2015 to drive new investment, simplify the existing system of offshore field allowance and provide greater certainty for investors.

This follows the Government's announcement at Budget that it would cut the Supplementary Charge from 30% to 20% and reduce Petroleum Revenue Tax from 50% to 35%.

During a visit to Aberdeen Harbour with Chief Secretary to the Treasury Danny Alexander, Mr Davey said the sanctions are not intended to be "draconian" but to help people to work together.

He added: "The regulatory changes that we have made are, frankly, the first, most amazing, significant changes to the regulatory regime since the oil and gas industry was founded in the North Sea all those decades ago, and the tax changes that Danny has overseen have been dramatic."

The regulator will be empowered to attend meetings, request information and engage in dispute resolution backed by sanctions "if people aren't playing along with the process", he said.

"If you are going to ensure that you help resolve disputes and you can change something, then you do have to have some regime that can produce sanctions," he said.

"It's not that we want to use those sanctions but they are there in the background to make sure that people are focused on how they can get a quick collaborative outcome.

"We're not here to be draconian, the idea is to help people work together.

"The fines are in the background. They could be used but the aim of the exercise is to get people round the table working for the joint benefit of everybody."

Speaking in Aberdeen, Mr Alexander said: "The new legal powers for the regulator, the Oil & Gas Authority, are there to make sure that that body has the teeth that it needs to deliver on its mission, which follows on from the Wood Review, to help lower cost in this basin and to help the industry work together more effectively.

"I think that mixture of tax action, the regulator, as well as what the industry itself is doing, means that the North Sea has a very good future indeed.

"I hope the tax changes and the regulatory changes will mean that the industry looks to the future with confidence, and see that when oil price starts to recover that there is a really strong appetite for investment - that this place is open for business.

"I hope that that will lead to some companies saying that 'we don't need to disinvest, we don't need to cut back to the extent that we previously intended to'.

"But, of course. government can't control the oil price, and the industry is trying to make changes in response to that.

"These changes aren't going to change that short-term reality, but I think by giving people much greater confidence for the longer-term it will help companies to think about investing now because there is money to be saved in the future."

In a statement, Exchequer Secretary to the Treasury Priti Patel said: "Industry asked us to prioritise the Investment Allowance and we have delivered, fast-tracking its design and implementation at Budget.

"Existing field allowances incentivised £14 billion of investment and this is a wider-ranging, more powerful tool to encourage further activity in this vital sector."

Andy Samuel, chief executive of the OGA, said: "It is important that the OGA has appropriate regulatory powers to support its work as a trusted facilitator.

"I'm pleased that industry has been involved in the process to inform the legislation which is being drafted and that our work to create an effective, independent regulator is on track.

"Equally important is the commitment of all parties to maximise economic recovery through collaborative commercial behaviours in the North Sea, to safely improve efficiency, deliver a competitive cost base and create an operating environment that attracts investment now and in the future."