The UK Government must not impose an "arbitrary and unfair tax" on energy companies as household fuel bills surge but must invest alongside North Sea players to "scoop up every spoonful" of oil, the Confederation of British Industry's director-general declared last night.
Richard Lambert, speaking at a CBI Scotland dinner in Glasgow attended by Prime Minister Gordon Brown, also urged the Government to keep a lid on public spending even if it did change its fiscal rules in light of recent economic developments.
Lambert, a former member of the Bank of England's Monetary Policy Committee, also warned of the dangers of the MPC moving too soon to cut benchmark UK interest rates.
However, he was hopeful that an easing of inflationary pressures in coming months might enable the MPC to cut base rates from 5% before too long.
Lambert told his audience there were "no silver bullets" to halt the decline in the UK housing market, or to shoot the economy rapidly back on to a growth path.
He did say that the most vulnerable members of society would need protection against market forces - citing the Government's moves this week on the housing market. These moves included stamp-duty relief and providing greater help to people who get into trouble repaying their mortgages.
Lambert declared that Government help for the vulnerable must come in a form "that makes economic as well as social sense".
He added: "There's a good example of what I mean coming up very soon. Quite a lot of people are going to find difficulty in paying their fuel bills this winter. The worst way to assist them would be to impose an arbitrary and unfair tax on the energy industry, just at a moment when we want those same companies to be preparing for vastly-increased investment in our energy infrastructure.
"The best way will be to work with, rather than against, industry to identify both those citizens who are in the most need, and the resources that will be required to help them."
Lambert warned business conditions were likely to be "tough and uncomfortable for the next year or two".
However, he said the UK must build on those comparative advantages which would stand it in good stead when the recovery came.
Lambert cited "offshore energy" as one obvious example in Scotland, coupled with "the hugely-successful" onshore supply chain.
He noted the UK had produced the equivalent of nearly 38 billion barrels of oil and gas over the last 40 years, and still had the potential for a lot more.
Lambert said estimates ranged from a further 16 billion to 25 billion barrels, and some went higher still.
He added: "These reserves are in difficult and dangerous places: recovering them is not a certainty. Massive new investment will be required to make it possible, and this must be the shared objective of government and industry With oil running at $109 a barrel, we need to scoop up every spoonful of the stuff from the North Sea."
Lambert said that every billion pounds spent by this industry created about 20,000 jobs across the supply chain.
He also declared that growth in renewables, and particularly offshore wind energy, offered another great challenge and opportunity to industry in Scotland.
However, Lambert said that this would require massive investment, and added that market forces would not by themselves provide all the answers.
The CBI director-general declared: "In the early days at least, we may need subsidies to get this expensive source of energy into production."
Noting Brown had said that "meeting the renewable targets that we are obliged by our EU (European Union) commitments to achieve by the year 2020 will require an investment of around £100bn", Lambert declared: "Let's start working together now to ensure that this enormous investment drives an industrial renaissance right across Great Britain."
Lambert emphasised the importance of sustaining the monetary policy framework which Prime Minister Gordon Brown had himself created when he came to office as Chancellor 11 years ago.
The CBI director-general acknowledged this was "not a comfortable thing to do, at a time when family and business budgets were coming under increasing strain" and cited "growing pressure on the Bank of England to cut interest rates".
However, he warned: "The hard-won credibility of our system could be jeopardised if the Bank moved too quickly at a time when inflation is still moving sharply higher. And those of us who lived through the 1970s and 1980s know that the cost of lost credibility would over time be still-higher interest rates, and rising unemployment.
"The hope is that the current spike in inflation will pass in the coming months, and that the Bank will soon be in a position to start moving rates lower. After all, it has to be forward-looking when making its decisions, since a change in the Bank rate takes quite a time to work its way through into the economy. And there's now a growing feeling that the fall in demand poses a greater risk than rising inflation in the medium term. But we may have to wait a little longer to be sure."
Urging restraint on public spending last night, Lambert said: "Macroeconomic stability also requires sound fiscal policy and that too will be challenging at a time when the public finances are not in good shape and tax revenues are being hit by the slowdown. We are told that the government may be rethinking its fiscal rules, and that may not be a bad idea - provided it's not a disguised route to sudden fiscal expansion. Any such move would quickly be reflected in higher interest rates and lower sterling, and would only be damaging over the medium term.
"Prudence is once again going to have to be the Government's watchword when it comes to spending policies."
Lambert noted the CBI had been "strongly critical" of some aspects of Government policy over the past couple of years, particularly on tax matters and management of the public finances.
However, he said the CBI also gave the Government credit for taking some of the tough decisions required for the UK's longer-term economic well-being. He cited, in this regard, tight curbs on public sector pay and defence of the opt-out from the European working time directive.
Lambert added: "These are not vote-winning policies over the short term. But they will help to create jobs and new investment over the rather longer term."
