Chancellor George Osborne has indicated that there are likely to be further tax concessions for North Sea oil and gas companies in a bid to avoid production and investment cutbacks in the face of rapidly falling crude oil prices
Last month’s Autumn Statement included an immediate 2% reduction to the rate of the supplementary charge from 32% to 30% from 1 January 2015, with an aim ‘to reduce the rate further in an affordable way’.
In interviews at the weekend Osborne said there would now be ‘more action’ as the oil price has more than halved over the last five months. The Chancellor stated: ‘I don’t want to pre-empt the budget but I can see that may well involve further reducing the burden of tax on investment in the North Sea.’
The Autumn Statement included announcement of a new streamlined investment allowance which the Treasury said would ‘hugely simplify the existing regime of field allowances and maximise the remaining opportunities’ for North Sea production.
It also contained a commitment to open discussions with industry in 2015 on the fiscal treatment of infrastructure and decommissioning relief following asset transfers, but did not say when any changes would be introduced. A consultation document is due to be published in early 2015.
However the industry body, Oil & Gas UK, is calling for much greater tax cuts and a radical overhaul of what it says is a complex, unfriendly and outdated tax structure.
Malcolm Webb, Oil & Gas UK’s chief executive, said: ‘Sharply falling oil prices are now adding to the significant challenges the UK offshore oil and gas industry was already facing. The current tax regime is one such challenge and a key factor for companies making decisions on investment and activity.
‘If the Treasury’s new Investment Allowance is to have any impact it must be implemented by Budget 2015 at the very latest. However, with the oil price now at around $50 per barrel, it is becoming increasingly apparent that this measure is not enough and a significant reduction in the headline rate is required.’
A Treasury spokesperson said: ‘The government is working with industry leaders as a matter of priority to address the challenges the industry faces as quickly as possible and to maintain Britain’s energy security by maximising the economic recovery of our domestic oil and gas resources, offshore and onshore.’
Ed Davey, the energy secretary, is due in Aberdeen on Thursday for talks about investment, the jobs outlook and the help which will be provided by the government’s newly formed regulator, the Oil and Gas Authority.
