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Oil set to become battleground in Scottish independence referendum

Charles Hendry, the energy minister, claims that only a UK government could provide a ‘stable’ environment to the industry

Britain’s energy minister Charles Hendry has implied that the North Sea oil industry would face greater risks and uncertainty if Scotland became independent, leaving it more vulnerable on the world stage.

In a letter to the industry trade association UK Oil & Gas, Hendry said that only the UK government could give it the influence in Europe and the “stable and consistent” regulatory and tax environment it needed.

Control over North Sea oil and gas, which is expected to generate £56bn in revenue over the next six years, will become a major battleground in the run-up to the independence referendum due to be held in autumn 2014.

Alex Salmond, Scotland’s first minister, claims Scotland would take control of 90% of North Sea fields after independence, helping it to become one of the world’s richest countries, a territorial claim disputed by the UK government.

Hendry avoided making a direct attack on Scottish independence, following a warning to ministers from David Cameron’s advisers to downplay suggestions that Scotland would be unable to survive or weaker after independence.

But in his letter to Malcolm Webb, chief executive of UK Oil & Gas, Hendry implied strongly that would expose the industry to greater risks: “I am aware that the upcoming referendum on Scottish independence is a point of uncertainty that could cause concern to your members.

“I would like to assure you that the UK government will act in the best interest of the union [between Scotland and England] by continuing to lay the foundations for a profitable future for UK continental shelf investment.”

The oil industry generally refuses to get drawn into debates about Scotland’s future, and a spokeswoman for UK Oil & Gas said it was not an issue. It remained neutral, she said.

Webb said it treated the UK and Scottish governments equally: “Oil & Gas UK is and has always been an apolitical trade association. We are committed to working with all levels of government throughout the UK and in Europe to maximise support for the UK offshore oil and gas industry.”

The latest in a number of UK ministers trying to increase their profile in Scotland, to combat Alex Salmond’s dominance of Scottish politics, Hendry will give evidence on Wednesday morning to the Scottish parliament’s economics committee.

He is also to confirm details of the 27th offshore licensing round on Wednesday, asserting that there are “many billions of barrels yet to be produced” in UK waters and a significant increase in approvals expected this year.

The UK government’s case has been damaged by the bitter row over the £2bn windfall tax that Danny Alexander, the Chief Secretary to the Treasury, imposed on the industry in March 2011 to help tackle the deficit. Alex Salmond’s government has leapt on the row, and has been pushing for Scottish parliament control over corporation tax rates, to cut them well below the UK rate of 25%.

A spokesman for John Swinney, the Scottish finance secretary, said Hendry’s remarks were “the height of hypocrisy.”

“The only uncertainty to the offshore industry has been caused by the UK Government’s smash and grab tax raid on the North Sea, costing the industry an extra £2 billion a year and threatening thousands of jobs,” he said.

Hendry tacitly admitted in his letter to Webb the industry had issues about taxation, but implied that the UK was richer and better able to use the tax regime to promote capital investment and exploit the UK’s technical expertise. “What is also critical is a fiscal regime that encourages investment and innovation, while also making a fair contribution to the public finances,” he said.

He also cited the UK government’s resistance within Europe to tougher controls on deep water drilling after the Gulf of Mexico disaster: “I would like to assure you that we are fighting hard to ensure Scotland and the rest of the UK’s interests are protected and any future measures do not undermine the hard won effectiveness of our regime.”

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