The government yesterday reaffirmed its argument that only a unified UK can give the North Sea the support it needs, as it called on industry to give its views on the UK oil and gas tax regime.
The North Sea’s potentially lucrative resources have been used as a political pawn in the Scottish independence debate, ahead of September’s referendum.
“The broad and diverse UK tax base means we are able to support the industry through, for example, certainty over decommissioning tax relief,” said Treasury secretary Danny Alexander.
“A separate Scotland is unlikely to be able to provide the same level of support and risks missing out on the economic potential the North Sea has to offer.”
The 12-week call for evidence comes at a challenging time for the UK North Sea, which is experiencing a sharp decline in production as its remaining reserves – estimated at around 21bn barrels of oil – become harder and more expensive to reach.
Oil and gas companies operating in the North Sea are currently taxed at 62 per cent or 81 per cent, in contrast to the standard UK corporation tax rate of 21 per cent. The industry argues this is detering investors and is calling for a rate cut.
“There is a pressing need for immediate measures to encourage exploration,” Tom Cartwright, energy and tax specialist at Pinsent Masons, told City A.M.
“Our regime compares very unfavourably to Norway for example, as you can't receive the tax relief until you have made a profit, which deters early-stage projects.”
The government raised a North Sea tax in 2011, which Cartwright believes created investor uncertainty.
“People don't know whether the government will hit the industry with more tax hikes, which deters overseas investment,” he said.
Oil & Gas UK, which represents the industry, yesterday welcomed the “urgently needed” tax review.