June 10, 2011 / 1:16 PM / 7 years ago

Scotland calls for minimum returns on oil and gas

LONDON (Reuters) - Energy companies should get a fixed minimum return on their UK oil and gas investments before being hit by the higher taxes announced in Britain’s last budget, Scottish First Minister Alex Salmond said on Friday.

Salmond -- a former bank oil economist and fierce critic of a rise in taxes on production from 20 to 32 percent announced by Chancellor George Osborne in March -- said the UK government must lift the tax load on one of Scotland’s biggest employers quickly.

“There is a great urgency here... If nothing is done about the supplementary charge, 15,000 jobs are at stake over the next 10 years,” Salmond said in Edinburgh at the launch of the Scottish government’s proposals for dampening the tax hit.

“I am anxious to get maximum support for these proposals... they will be submitted to the chancellor early next week.”

If oil companies stopped operations in the North Sea because of the higher taxes on production the government would lose out on much more tax income, he said.

According to one industry executive, the UK government is already considering offering incentives to ensure offshore gas exploration and production is not damaged by the tax increase.

The Scottish government’s preferred option is to guarantee companies a minimum rate of return on investments before they become liable to pay the higher taxes, allowing them to carry forward undeducted spending to set against future profits.

Edinburgh has also suggested extended field allowances linked to certain field investments to reduce the amount of tax a company has to pay on its profits.

Britain’s oil and gas output has declined over the last decade as existing fields in easy-to-reach areas have been steadily drained.

The government hopes energy firms will be able to stem the decline by finding more reserves in relatively unexplored deep sea areas around Britain, while the companies argue the tougher tax regime is off-putting.

The full Scottish government proposals can be accessed at www.scotland.gov.uk/Publications/2011/06/North-Seataxation

Reporting by Daniel Fineren in London and Ian Mackenzie in Edinburgh

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