North Sea Oil and Gas (Employment)

Eilidh Whiteford Excerpts

Tuesday 20th January 2015 Westminster Hall

[Mr Doran]

That is the sole point that I planned to make in this speech. [Interruption.] No, the right hon. Gentleman is right to raise the issue. It is important that Government and industry work together to try to tackle the problems that we have all identified.

In addition to labour costs, there are real issues about the way in which equipment is purchased by companies operating in the North sea. In Norway, for example, there is standardisation of equipment. The state is a more engaged regulator and Statoil, the state-owned company, has by far the largest stake in the industry, with a share of around 60% of production. Its purchasing powers are enormous and most companies will buy the standardised equipment developed or ordered by Statoil at much cheaper prices than bespoke equipment. Our largest operator in the UK has only 10% of production. There is no company that can lead standardisation in the way that Statoil can in Norway, so everyone purchases to their own requirements.

One example I heard about recently was the purchase of light switches. That may be an odd place to start, but it is relevant. In Norway, the norm is standardised plain light switches. In the UK, company insignia or another unique requirement is demanded by many operators, usually at double or more of the cost. Scale that up through the requirements of offshore operators, from light switches to drilling rigs, and you have very expensive processes that I think are holding the industry back. Of course, this has an impact on Government, too. Every bespoke item has a higher cost than a standardised one, which reduces profits, which reduces taxes paid.

The sooner the Wood review recommendations are fully implemented, the better. I do not think that that will affect the price of light switches, but I hope it sends a clear message. I know that the industry is developing a strategy at the moment, but it will take time to put that in place. Cutting costs that are incurred at present is a must if any progress is to be made.

Probably the major issue for the industry is the tax system. Every Government since oil was first discovered in the North sea have treated the industry as a cash cow. Tax increases, occasionally unannounced, are the norm. The tax system is complex and expensive. The Government are anxious to protect their income from the industry, but that will become more and more difficult if current problems persist. Profits have to be made for taxes to be paid. I understand that in the last financial year the overall performance of the industry was negative—this year might be even worse.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I congratulate the hon. Gentleman on securing today’s debate, which is on an issue of deep concern to all of us from the north-east of Scotland, where so many jobs are dependent on the oil and gas sector. I want to add to his point about taxation. Does he agree that we need those tax changes now? I have no doubt that we will see more announcements of job losses in the coming weeks. We need changes to the fiscal regime now, not a couple of months down the line.

[Mr Doran]

I think there is a case for what the hon. Lady says, but I disagree with her. We will have a Budget in two months’ time, and announcements will be made then. In the meantime, we know that the Treasury is working on the position. As she will see from the rest of my contribution, I am more concerned about how the tax cuts are made, rather than that tax cuts are made. I want focused and targeted tax cuts, not just a chop off the supplementary charge that was introduced in 2011.

It is important to look at the responses that should be made to the current situation. In the 1980s, there was virtually no Government response. There may have been one behind the scenes, but it was not visible to those of us who were involved at that time and were concerned about what was happening in the industry. We have the opportunity to mitigate substantially the impact of the collapse in the oil price. Members would expect me to say this, but I was pleased when Councillor Jenny Laing, the leader of Aberdeen city council, announced in December her plan to host a summit in Aberdeen to consider the challenges facing the industry. That summit will be held on 2 February. It is supported by Oil & Gas UK and will be attended by the UK and Scottish Governments, as well as by industry experts. That announcement caused the various other bodies with an interest to consider their reaction. Since then, Government Ministers and MPs have been queuing up to visit Aberdeen. My hon. Friend the Member for Glasgow East (Margaret Curran) has made her trip there. The Secretary of State for Energy and Climate Change was there last week. The issue is being taken much more seriously than it was in the 1980s.

To go back to the question from the hon. Member for Banff and Buchan (Dr Whiteford), tax reliefs are back on the table. The Chancellor has made it clear that they are being considered, which suits the oil industry, because it has been asking for them. Since the collapse in the oil price, industry representatives and others have insisted that there needs to be a tax cut. Oil companies are still angry about the increase in the supplementary charge made in the 2011 Budget, and they would like to see it removed completely. The Chancellor has met them a small part of the way by introducing tax reliefs for brownfield sites and for high-temperature and high-pressure fields, and after his much hailed tax review last year the mouse of a 2% reduction in supplementary charge was announced.

Regardless of the 2011 increases, both field reliefs are important and have resulted in extra activity from the industry, even in these difficult times. The lesson from that is that it is in the interest of the industry and the taxpayer that any tax reliefs that are given should be focused and not random. There are many areas where more targeted and focused tax reliefs would create a win-win situation for all sides. For example, an investment allowance would encourage more activity and create more income and thus more tax revenues. Investment in research and development has slowed significantly in the industry, yet that is crucial in the search to find and produce oil and gas, whether by enhanced recovery techniques, better infrastructure to improve recovery or whatever other area that could improve the industry. The Government should also consider targeted reliefs to protect jobs and skills. Health and safety is a major issue for me. For many years, I have been heavily involved in that issue offshore. It must remain a priority. The Government should consider a specific targeted relief to support the continuing maintenance of infrastructure and the improvement of health and safety systems and equipment.

The consequences of the 1980s downturn were not only job losses. All projects that were in progress were stopped. The platforms that were producing oil and gas carried on producing, but many costs were cut to the bone. In particular, areas vital to safety, such as fire safety equipment, deluge systems and others, received little or no maintenance. The consequences of that approach were not immediately apparent, but on the night of 6 July 1988 they were there for the whole world to see. The Piper Alpha platform exploded with 167 deaths. It is still the most serious loss of life from any incident anywhere in the offshore oil and gas industry. If there is slippage in maintenance through the downturn, the dangers for offshore workers will increase significantly.

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[John Robertson (Glasgow North West) (Lab)]

It is a pleasure to follow the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith). I congratulate my hon. Friend the Member for Aberdeen North (Mr Doran) on securing this debate. It is perhaps a sign of the times that we have decent turnouts in debates only when a disaster or something bad has happened. I congratulate my hon. Friend on the work he is doing in his constituency, along with his fellow Members of Parliament in the area, and I thank the shadow Chancellor, who, along with the new leader of the Scottish Labour party, is in Aberdeen today to help to fight for jobs. I do not want to make a political point about it, but it would be a lot better if the Secretary of State for Scotland and the First Minister and various others were with them, putting up a political united front to help the industry and jobs.

According to Oil & Gas UK, about 450,000 jobs are associated with the oil and gas industry. The hon. Member for Banff and Buchan (Dr Whiteford) asked about jobs and the number of people who have been hit in the north-east, but only 202,000 of the jobs are actually in Scotland; the rest are outside Scotland. With 130,000 jobs in the Aberdeen area and all these other jobs, the whole country is suffering. It is not just one small area.

[Dr Whiteford]

I fully accept that many jobs throughout the UK depend on the oil and gas sector. The difference in the north-east of Scotland is the concentration of jobs. It is not just the direct oil jobs that depend on the oil and gas sector; it is not even just the jobs in the wider supply chain. It is the small shops, our retailers, our service providers, our construction companies—our whole economy is heavily dependent on oil and gas, so the ramifications of this go far further than simply just jobs in the oil and gas sector.

[John Robertson]

The hon. Lady is absolutely right, but a small company in my constituency that makes goods that are used up in Aberdeen also uses local shops and local people. If the jobs of 450,000 people in the United Kingdom are in danger, we can multiply that by goodness knows how many, but it would probably be millions of people who could be affected.

We know from previous times in the North sea that there will be losses. It has happened before and, sad to say, it will probably happen again, but the fact of the matter is that the North sea is in a particularly unusual position now. It is not what it was back in the ’80s, when we were getting oil and gas into the country. We are still getting oil and gas, but we are getting it from other places. We are not self-sufficient any more in these commodities; we now rely on other areas, so we have to fight to keep these jobs.

At a time when America has been diversifying into shale and is now the biggest seller of oil in the world, rather than the middle east, we have to look at where we are going in the future, but as the hon. Member for Banff and Buchan and my hon. Friend the Member for Aberdeen North said, we also have to look at skill shortages and how to increase our knowledge of how to work in these areas. Some of the experts I have talked to tell me that this depression in oil and gas will go on for at least two years. If it lasts that long, that might be fair enough and we could recover, but I have a horrible feeling it may last a lot longer than that. The price of oil is now down to less than $50 a barrel and the middle east countries are talking about continuing to supply oil and gas at the same rate, to ensure that the price remains low. That will have a knock-on effect for the North sea.

As my hon. Friend—we are on the same Select Committee—the Member for West Aberdeenshire and Kincardine said, oil and gas jobs have a knock-on effect for everyone. The rigs and everything else out in the North sea grow old and rust; they have to be maintained, but there will be no point in maintaining them if they do not get used. We have to find something like £40 billion over the next 30 or 40 years to clean up the North sea. That is not so bad if it is still in operation, but if the North sea is not in operation, we have to find that money from somewhere else.

My point is that we are talking about only the North sea at the moment. Some jobs in various companies have been lost already, but if we, the politicians of this nation, do not get our act together and do not work together to preserve jobs, not only will Aberdeen and the areas where the other 200,000-odd people are working suffer, but the whole nation will suffer. All the parties should get together and we should all fight for those jobs.

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[Margaret Curran (Glasgow East) (Lab)]

Mr Streeter, it is a pleasure to serve under your chairpersonship—I do not know whether I am permitted to use that word, or whether that is a precedent, but I have done it now, so so be it. I congratulate my hon. Friend the Member for Aberdeen North (Mr Doran), whose contribution demonstrated his depth of knowledge of the industry and his enduring commitment to it and the people who work in it, which is greatly respected in this House and throughout the country.

The entire debate has demonstrated the magnitude of recent events and the sweeping impact of such a significant decline in oil prices. As we speak, oil is currently trading at below $50 a barrel. In July 2008, the price stood at $145 a barrel, and as is well known in Scotland the White Paper that was used by the Scottish National party during the recent referendum was based on financial planning with an oil price of $110 a barrel. This debate is therefore a significant one.

It may not have been said today but it will certainly be said in other forums that although the price might offer some relief to Scotland’s motorists it has significant impacts on the oil and gas industry. Many Members have referred to the key facts and figures, which I will emphasise once more. The production of oil and gas contributed £30 billion to the UK balance of payments; the supply chain, which has been a focus of the debate and is of great importance throughout the country, generated over £20 billion in the past year and, as my hon. Friend the Member for Glasgow North West (John Robertson) said, the industry supports 450,000 jobs across the United Kingdom.

It is an industry of international importance that is vital to the UK and iconic for Scotland, and has particular significance for Aberdeen and the north-east of Scotland—the effects of the fall in oil price will be felt throughout the country, but most deeply there. We heard about the loss of 300 jobs announced by BP but know that there are more to come.

[Dr Whiteford]

In the past half an hour or so, while we have been having this debate, a further 300 job losses have been announced by Talisman. I have stressed the importance of urgency and am worried that there will be further similar announcements between now and March. The Government need to give confidence to the industry that they will cut taxes. Does the hon. Lady share that view and will she urge the Government to act with more haste rather than waiting for announcements of yet more job losses in the North sea industry?

[Margaret Curran]

I will indeed emphasise that very point when I come to it later. I will begin by addressing the hon. Lady’s primary point about job losses. We are deeply concerned about them. As my hon. Friend the Member for Aberdeen North made clear, operators and trade unions are warning about job losses and their impact. Of the 30,000 jobs directly linked to the industry, 23,400 are in Aberdeen itself. One can only imagine the conversations taking place not only in companies but around kitchen tables in Aberdeen and the north-east. Jake Molloy of the National Union of Rail, Maritime and Transport Workers drew parallels with 1986, when the fall in oil prices led to long-term job losses and a very significant impact on the industry. We certainly do not want that to happen again, and need to take action. Sir Ian Wood, who has featured in many contributions this afternoon, indicated that there could be between 30,000 and 40,000 job losses. It would not be surprising if that were the long-term impact.

The Scottish Parliament information service said that 15,750 jobs could be lost in Scotland as a result of what is happening. The core question we must ask ourselves is, can we be assured that the Government and the Scottish Government get the magnitude of what is happening and what needs to be done? The trade unions have said that it would be the largest loss of jobs since the Ravenscraig steel works closed its doors 23 years ago in Scotland—23 years later, we still remember the impact of Ravenscraig. Let us take action now to ensure that does not happen again. The message of this debate must be that we have to work together on a cross-party basis to properly challenge the Government when they are not doing enough. The oil and gas industry is a strategic industry of critical importance, and it needs a long-term, predictable context in which to operate.

I congratulate, as one Member did, Jenny Laing, the leader of Aberdeen city council, who took immediate action, called for an oil summit and managed to get all the key players together. That was the right thing to do, and I expect that it will be successful, but the UK and Scottish Governments must take decisive action.

The UK Government’s 2011 tax reforms created difficulties and undermined confidence—I hope the Minister will acknowledge that. In the autumn statement, the Chancellor indicated the difficulties that it caused, and he hinted that there must be a new strategy for oil and gas. I concur with the hon. Members who said that we need action now. I hope the Minister will indicate that the Government will take action and respond to the industry’s call for support.

I ask the Minister to use his good offices to put pressure on the Scottish Government to publish the oil and gas bulletin as soon as possible. Scottish National party Members have said that they are looking for a range of actions, but we are asking the Scottish Government to provide the evidence on which they based their recommendations. They previously published a number of oil and gas bulletins and figures showing the impact that the industry will have on their revenues. I hope they will publish another one as soon as possible so our approach can be evidence-led, and so we know the basis on which we can take action.

My right hon. Friend the Member for East Renfrewshire (Mr Murphy) called for a resilience fund to help strategic industries and to enable us to address local needs, including issues affecting local companies, local industries and the devastating impact the downturn will have on local communities. He has also talked about reducing business rates to help people through the downturn. As my hon. Friend the Member for Aberdeen North said, my right hon. Friend is in Aberdeen this afternoon with my right hon. Friend the Member for Morley and Outwood (Ed Balls). They are calling for profound, strategic action to address these issues. We need a road map—a strategic plan—for the industry that is not about short-term changes but comes to terms with the profound shifts that we are seeing. It must create certainty so the industry can be sure about the tax rates over a Parliament and firms can invest in the long term. It must be about sustainability, and it must put oil revenues in a UK public finances framework so we can protect ourselves against oil price volatility. It must not create high levels of risk that could jeopardise Scotland and our public finances.

We must ensure transparency. We must not make short-term, ill-thought-out tax changes, but consult with the industry to ensure a transparent regime. We must have the flexibly to meet immediate challenges. As many hon. Members have said, we must implement the Wood review. Will the Minister tell us when the new Oil and Gas Authority will be established? That demand is coming straightforwardly from the industry.

This has been a very good debate, and we have covered a lot of ground. Hon. Members have demonstrated a great depth of knowledge about the industry’s demands. We need to tell people—not only those in the north-east, but those in Scotland and elsewhere in the United Kingdom—that we understand the scale of the job losses that may be imminent, and that we can take action to address that. We must let them understand that, as we gather here together, we will challenge the Government, who must stand up and do more. That is what the industry is asking the UK and the Scottish Governments. We are prepared to work together to support our iconic oil and gas industry, of which we are so proud in Scotland, through this challenge to prevent job losses and to ensure that it has a healthy, sustainable future. We do that best when we recognise the true depth of what is happening and do not try to duck it. Government action can have results, but we need to see it now.