MPs question North Sea tax increase
Chancellor George Osborne's £2 billion tax raid on the profits of North Sea oil and gas companies risks undermining the Government's credibility on taxation, MPs have warned.
The Commons Treasury Committee said Mr Osborne's Budget announcement last month that he is raising the levy on the firms in order to fund a cut in fuel duty has come less than a year after he promised the industry a stable tax regime.
It said the measures set out in the Budget on energy prices - from scrapping the fuel duty escalator to the introduction of a carbon "price floor" to encourage cleaner energy sources - "lack overall coherence" as a package.
The decision to increase the supplementary oil and gas levy by 12% drew a furious response from the industry, which complained there had been no consultation. Some firms warned they will now be reviewing their North Sea investments.
The committee said the way the issue has been handled "may weaken the Government's credibility in seeking to establish a stable tax regime in this and other areas", and added: "Such reversals of policy in the absence of changes of circumstances that would warrant them is bad for business confidence and the credibility of Government policy-making."
The committee also warned that the markets need to be confident the Chancellor is committed to seeing through deficit reduction plans, amid concerns his planned spending cuts "may prove too difficult to implement".
Ministers were reportedly furious when it emerged last year that Cabinet Secretary Sir Gus O'Donnell had been working on a so-called "plan B" in case Mr Osborne's austerity programme plunged the economy into a double-dip recession.
The committee said: "Markets need to be confident that the Government is committed to its fiscal policy. A Government which talked of a plan B as a substitute for that policy would prejudice that confidence. However, a responsible chancellor is likely to have contingency plans to deal with a variety of scenarios where economic circumstances are fundamentally changing. Those plans should not be made public unless and until they are needed."
The committee said that the full impact of Mr Osborne's plans has yet to be felt, with a fiscal retrenchment of £41 billion due in the financial year just started, compared with £9.4 billion the previous year.
It also cast doubt on the Chancellor's plans to revive enterprise zones, saying that the evidence was "unsure" about the extent to which they would contribute to overall economic growth, and warned that help in the Budget for first-time homebuyers could simply push up house prices if it does not also lead to more housebuilding, taking "house purchase out of the reach of more people".