North Sea Oil and Gas (Employment)

Debate between Eilidh Whiteford and Frank Doran

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.