RECENTLY in this column, we wrote about the tumbling price of oil and its impact on the economy, writes Oliver York, of wealth managers Brewin Dolphin.

With no obvious end in sight, consumers continue to delight at falling prices at the pumps; whist a global oil glut quietly takes its toll on economies around the globe.

Two of Britain’s largest oil and gas companies, BP and BG Group, recently produced reports portraying a grim future for oil production in the North Sea. As prices have fallen, so have oil profit margins. Both Bob Dudley and Lord Browne, the current and former executives of BP advised last week that without significant reductions to costs, it will be inevitable that some North Sea oil companies will go to the wall. These views were echoed by the chairman of BG Group, Andrew Gould, as he branded oil production in other regions globally more profitable than in the UK. So what does this mean for Britain’s economy?

Brent oil fields off the coast of Lerwick created thousands of jobs back in the 1970’s, whilst contributing billions of pounds to the UK government in taxes alone. Fast forward to 2015 and the recent job cuts and the decommissioning of North Sea gas fields reveal a very different reality.

Many have called upon the current government to provide a solution through the creation of tax incentives for oil producers in order for them to maintain production and to save any further job cuts. This includes, Malcolm Webb, Head of Oil and Gas UK (OGUK), who recently called for a 30 per cent tax rate so that the oil industry can be treated as the same as any other. Currently, some of the largest UK companies are paying as much as 80 per cent, so it’s not hard to see where the problem lies, and why industry leaders are increasingly keen for Chancellor George Osborne to remedy this in the forthcoming Budget.

In the North-East, the first reported casualty of the crisis was Archer. The drilling company closed its doors on its Blyth office, leading to a loss of 70 jobs in December last year. Global subsea specialist, Flexlife, have recently followed suit, as the company considers the future of its Newcastle base, which employs over 20 people. Business advisors Ernst and Young (EY) expect a further 35,000 reduction in headcount across the North-East offshore industry, a number which will noticeably burden the North-East economy. Many of the smaller companies will have profit margins stretched to their limits, potentially causing them to fall into administration as a result. Those who are able to weather the storm in the North-East could find themselves with a wide array of skilled workers, having a dramatic impact in the regional supply chain in the long run.

One thing we do know is that it would take a bold economist to predict the bottom of this pricing crisis with any certainty. The only known truth is that should oil prices fall further as many analysts predict, there are likely to be more job losses and potentially a cessation of UK North Sea oil production.

Oliver York is a Trainee Investment Manager at wealth management firm, Brewin Dolphin oliver.york@brewin.co.uk

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.