Oil and Gas UK warns over dangers from falling back on WTO rules and curtailing freedom of movement

This article is more than 3 years old

This article is more than 3 years old

Brexit would land the oil and gas industry with a half-billion-pound bill if EU exit talks end with the UK leaving on World Trade Organisation rules, Theresa May has been warned.

The costs for trading £73bn worth of oil and gas annually would jump from £600m a year now to £1.1bn in a worst case WTO scenario, analysis for the industry trade body found.

At best, if the UK could strike more favourable tariffs with non-EU countries, the cost of trade might fall to £500m, Oil and Gas UK said.

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The group wrote to the prime minister this week to say its members could ill afford further costs that might hamper the industry’s fragile recovery after a two-year slump.

“We are becoming a more globally competitive industry, but we continue to be very sensitive to any additional burdens either in relation to cost, or restrictions on the movement of key personnel required for critical operations,” the body’s chief executive, Deirdre Michie, wrote in a letter to May.

On WTO rules, the EU would apply a 3% tariff rate on exported refined petroleum goods, with a range of tariff rates applied to other goods. The result would be an extra £260m trading cost imposed on exports, and £230m on imports.

The analysis by EY for Oil and Gas UK notes that “this additional cost would be unwelcome”, coming on top of the UK industry shedding more than 120,000 jobs between 2014 and 2016 as the price of oil slumped.

The trade body also argued that post-Brexit freedom of movement should not be curtailed in a way that would put the industry at a “competitive disadvantage” with other countries. About 10% of the UK oil and gas sector is from outside the country, slightly above the national average.

The group urged the government to ensure that a post-Brexit immigration system would “ensure that any added administrative burden for recruiting non-UK staff where necessary is kept to a minimum”.

Another post-EU issue identified as crucial by the industry body is whether the UK remains a member of the bloc’s carbon trading scheme. Under the Emissions Trading System, oil refineries currently have to pay €4.45 (£3.75) per tonne of carbon. Ministers have not given any signal yet of whether the UK will remain in the market.

The UK oil industry has contributed £190bn to the Treasury since the 1960s, not adjusted for inflation, but prospects for the coming few years are uncertain, and oil majors have begun to sell North Sea assets to smaller, independent players.

Falling production and tax relief for decommissioning old rigs caused a net drain on public finances last year, costing the exchequer £396m.