Time for a robust response on North Sea tax regime

THESE are the worst of times for the oil industry in Scotland, but we hope not the end of days. Sir Ian Wood does not have a dog in the fight between Saudi Arabia and Iran, nor between Washington and Caracas, but that is where the market is being driven. We can only hope our industry will come through a period dominated less by extraction costs, which they can handle, than geopolitics, which they can do nothing about.

The reasons why the price of Brent crude has tanked have nothing to do with any political or economic instability that may or may not have been occasioned by Scots choosing to ponder their political future last year.

So Jim Murphy rushing to Aberdeen to call for a resilience fund is questionable from a party that, when in government two generations ago, wilfully passed up the idea of an oil fund. Nor does Jackie Baillie weeping crocodile tears about the crisis, as a retrospective stick to beat the SNP over last year’s referendum, pass muster.

Nor, it should be said, does the response of Nicola Sturgeon’s Government to the dire projections and statistics. Her ministers ought to be honest enough to provide and speak to updated projections.

Labour should stop gloating or showboating and the SNP ought to be more open and proactive. Yesterday’s pledge from Scottish Secretary Alistair Carmichael to participate in any summit organised by the SNP administration was exemplary. But the truth is that none of this matters all that much in the face of the monumental inaction from George Osborne.

In 2011 he hiked the supplementary tax rate on the oil industry from 20 to 32 per cent on the basis that oil prices had doubled. Last year there was a cut to 30 per cent. Now, there are no specific promises except for some unspecified action at the Budget in the spring.

That is not good enough. As professors Alex Russell and Peter Strachan put it in a Herald Agenda article: “The Chancellor needs to be seen to act decisively and not merely tinker at the edges of the tax system. In the 2011 budget, Mr Osborne raised the supplementary tax rate from 20 per cent to 32 per cent, using the justification that oil prices had almost doubled.

“With oil prices halving in the past six months, that hike needs to be reversed immediately. Arguably, the oil industry should be put on an equal footing with other industries and the supplementary tax should be removed.”

They spoke eloquently of the industry as being “on the precipice — the good old days gone for ever”.

We desperately need a tax regime that recognises the volatility of the price of Brent crude, one subtle enough to respond in a suitably fluid fashion to the peaks and troughs.

Instead, the Chancellor’s approach too often resembles the attitude of the oil companies to petrol prices at the pump — quick to cash in when the price goes in one direction, slow to react when it goes the other way.

Is it too much to ask for a coherent formula?