Ever since the tax raid on oil and gas producers, the energy industry and the Treasury have been at loggerheads
In the great battle of the North Sea, no side is deserving of one's entire sympathy. Ever since George Osborne launched his tax raid on oil and gas producers in his March budget, the energy industry and the Treasury have been at loggerheads. And yet neither side is in the right. In carrying out its threat yesterday to mothball a giant gas field in Morecambe Bay, Centrica is obviously making more than a business decision – it is making a stab at gesture politics.
As its adroit use of the media over the past month indicates, the utility is broadcasting a clear message: if government messes with the energy-tax playing field, Centrica executives will simply take their ball away. If an individual did that, HM Revenue and Customs would come down on him like a pile of brown envelopes – and rightly so. Similarly, when the CBI director general sends a letter to the chancellor warning him that "companies have global opportunities for investment" and that higher taxes will send them overseas – and then angles to get said missive in yesterday's FT, he too is acting politically. He is also contradicting the calls from his organisation for more state investment in educating workers – investment which is presumably to be funded from higher taxes. In both cases, what is going on is a display of pinstriped muscle – an attempt to wheedle, lobby and finally intimidate government from making whatever decisions it feels are necessary in the national rather than sectional interest.
All that said, Mr Osborne has not acquitted himself especially well. The chancellor claimed the justification for jacking up the supplementary charge on North Sea output from 20% to 32% was to pay for a penny cut in fuel duty. The politics were clear and must have seemed clever: Big Oil should pay for little motorists. But it was a bad move on three counts. First, gas is not the same as oil – the link the chancellor made was largely rhetorical. Second, it was a waste of tax money, frittering away most of an extra £2bn a year to make a lunge for drivers' affections. Had he used the money to invest in North Sea renewables, Mr Osborne would have been on safer, and certainly higher, ground. Finally, this measure was sprung on the industry without consultation – and any chancellor who wants to see what happens to those should ask Alistair Darling about how he had to beat a retreat from the barons of private equity.
What a contrast this makes from the Treasury's kid-gloves approach to the City. There, the bank levy was watered down to make sure it did not raise too much money. Energy executives are campaigning hard now – but when it comes to lobbying they evidently have a lot to learn from bankers.