Oil Tax Cuts – Who Benefits?

The industry is all a buzz at the new tax cuts which, according to George Osborne, will boost the oil and gas economy to reverse the effects of the recent plunge in oil prices…. over the next ten years! Effectively all this has done was reverse Osborne’s tax grab from the previous budget, without which the industry may have been in a better state to weather this storm.

But the real question with this announcement is… Who benefits?

It is quite obvious that a measure designed to have an effect over ten years will do absolutely nothing for the SMEs and individual contractors that are the backbone of the industry. All that will happen is the cuts will be offset against the operating companies 2015 losses. The tax break will be used to pad out the balance sheet and raise the dividends for the operating companies shareholders.

Politically this all sounds very nice. The government can tell the public how much they are helping the industry. But in my view, for tens of thousands affected by job cuts and lost contracts, there is little or no benefit in tax cuts. The public meanwhile are enjoying low pump prices and think that the world is wonderful, whereas a multitude of contractors, consultants and SMEs in this industry are hurting and just hoping to survive.

By the time any of this filters down many will have abandoned the industry. This is a boon for the offshore renewable energy industry who now have thousands of experienced people looking for work. When the O&G operators start developments again they are most likely to find most of the experience and expertise they need has gone.

For the hardest hit, the SMEs and contractors trying to stay in the industry their only option is to diversify and innovate or die. No tax breaks for them, only demands for lower prices from the operators. This is where the tax breaks are needed, to keep the SMEs  and contractors profitable, not at the top in hope that they will trickle down to where the need actually is.