The chancellor was accused yesterday of increasing the chances of an energy crisis by launching a £2bn-plus a year tax raid on North Sea operators. The furious reaction from oil and gas companies, which claimed it would chase away investment, came after Mr Brown imposed his second windfall tax on the cash-rich oil and gas industry within three years. He has raised corporation tax to a total of 50% through a second supplement of 10% in a move that will net more than £2bn a year and £6.5bn by 2008, the UK Offshore Operators' Association said.
Gordon Brown argued that the move was justified, given the impact on the wider economy of oil prices rising from $25 a barrel to more than $55. Returns in the North Sea were now nearly 40% on capital, compared with ordinary returns on capital of 13%, he pointed out.
He said: "With the tax on new development in the North Sea now lower than in the USA and Gulf of Mexico, Norway, Italy and Australia, and in order to strike the right balance between producers and consumers, I will raise the supplementary North Sea charge from 10% to 20%."
To soften the blow, he gave a small tax break to encourage exploration of the most difficult fields. He also promised no further tax hikes during this parliament.
But UKOOA, which represents most North Sea firms, said the move would have a catastrophic impact on confidence amid rising fears of energy shortages and power blackouts. "The chancellor's move has pre-empted the energy policy review and will distort its outcome," said UKOOA's chief executive, Malcolm Webb.
"His move could not come at a worse time. North Sea activity has recovered remarkably since 2002, when it was last hit by a punitive tax change ... It is extraordinary that the government has not appeared to have learned from past experience, and its failure to do so will cost this country heavily in terms of jobs, inward investment, balance of trade, security of supply and tax revenues. It will deter investment in new fields and make older fields less attractive."
Shares in leading North Sea companies fell in the City and the independent oil consultancy Wood Mackenzie calculated that £8.2bn worth of value had moved from the industry to government.
Analysts believe the windfall tax hit will cost BP at least an extra £350m, on top of the £1.2bn a year it already pays. This is quite a small sum for a firm with profits of £3.5bn in just the third quarter of this year but much of the profits are earned abroad.
A spokesman for BP, Britain's biggest company, said last night: "Tax is tax. The government imposes it and we pay it." But he also warned that "money that goes in taxes is not available for investment."
Tullow Oil, a medium-sized firm with gas fields in the southern North Sea and substantial holdings in Africa, said the tax hike was a disappointment but "no surprise." Tom Hickey, finance director, said: "This is a disappointment but it's not going to make us change our strategy."
Another spokesman said it may help if it drove out larger firms. "Arguably, we could benefit if it removes competition and encourages the sell-off of assets."
The City broker Investec Securities agreed, noting that the tax rise of 2002 led to a 13% fall in North Sea capital spending. "This could speed up the exit of the larger players and slow the entry of new smaller players," said Jonathan Copus, oil analyst. "This is not a very good long-term strategy for a mature hydrocarbon basin."
Mike Warburton, of the accountants Grant Thornton, put it more dramatically: "Corporation tax on oil companies was already 40% and is now going up to 50%. Along with the other taxes on oil companies, the government now effectively owns more of the oil companies than the shareholders do."
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