What the UK’s Oil Industry Tax Increase Means for Businesses

The controversial decision by the chancellor to increase tax on oil and gas certainly hasn’t been taken lightly. Concerns have been raised by Scottish First Minister Alex Salmond (an oil economist in a previous life) that the tax will cause job losses and discourage companies from investing in Scotland, whilst the trade body Oil & Gas UK have surveyed their members and found that 25 developments are less likely to go ahead and the closure of dying fields has been accelerated.

Despite many pleas from politicians and business people alike, George Osborne is standing firm on his decision and will not reverse the tax increase. Amidst countless news articles filled with crying and gnashing of teeth, one question has been neglected; what does the tax increase mean for business?

The majority of businesses who are going to lose out are those in the oil and gas industry; both infrastructure and supply chain. Reports have shown that North Sea oil production has fallen 15.6% since the cut was announced; the lowest level since records began in 1996. Investment in the UK energy businesses has also fallen with Centrica (owners of British Gas) pulling out of Britain’s largest gas field due to it no longer being economically viable following the tax hike.

For other industries the shockwaves of the impact will make themselves known. Initially, the increase in the cost of a barrel of crude will rise (in order to make prospecting in the UK worthwhile) and inevitably so will business energy costs. Business owners should keep their ears close to the ground and use business energy comparison sites to find the best deal on energy. It is likely that energy companies will lose a lot of custom based on the rising prices, so now may be a great time to get on the phone to your supplier and haggle as they will be desperate to keep their clients. However, any discounts are likely to be small as the problem is worldwide.

If running a business in the UK becomes more costly, foreign businesses may choose to invest elsewhere. Although oil and gas prices will still be high in Ireland, their rate of corporation tax is lower (12.5% compared to the UK’s 21.5% as of June 2011) and this will help to attract businesses looking to cut costs within their organisations. If you own a large business it might be worth considering relocating to the Emerald Isle to take advantage of this.

The increase in the cost of oil does have a silver lining in that businesses must make more of an effort to become energy efficient. Although often associated with environmentalism, energy efficiency is also about saving money by using energy wisely. Organisations can become energy efficient by taking small steps; the British Council for Offices suggest that changing staff habits is likely to decrease energy consumption by 10%-20%, and switching to energy saving bulbs and turning the heating off could save more than you think

Jennifer Adams is a blogger for the website Cashzilla, a site that reports on business and topics like business energy or a number of clients. For more and similar posts, check out Cashzilla.co.uk or head to our Twitter account, @cashzilla.

Published in Business, Finance