The Chancellor is likely to announce new tax breaks for North Sea oil firms in his upcoming Budget.
George Osborne met industry body Oil & Gas UK yesterday to discuss the future of the offshore oil and gas sector.
The group’s chief executive Malcolm Webb said he came away from the meeting feeling “encouraged”. He revealed: “We outlined the three areas where action is needed in order to secure the future of our industry, namely: regulatory change; cost and efficiency improvement; and fiscal reform.”
The industry body is advocating for the introduction of an investment tax allowance, which would tie tax to the level of profitability in an investment. Such a move could push tax as low as 30 per cent.
Webb stated: “On taxation, we advised that a simplified investment allowance, together with a significant reduction in the supplementary tax charge on the industry, were now required in order to improve the UK’s competitiveness and hence sustain investment in the future.”
While he added that the chancellor had not confirmed the measures he will introduce in March’s Budget, Osborne’s comments at the opening of the OECD’s Economic Survey of the UK earlier this week referenced plans to back the North Sea oil and gas industry.
He stated: “I want the hardworking people whose livelihood depends on the oil and gas industry to know that the British government is standing alongside them – and we will do everything we can to help. We’ve already cut taxes – and if we need to we will do so again in the Budget.”
The Treasury declined to comment on yesterday’s meeting.
OSBORNE AND THE NORTH SEA: A RECENT HISTORY
Osborne announced that the supplementary charge on oil and gas production in the North Sea, which firms pay on top of standard corporation tax, would be raised from 20 per cent to 32 per cent. At the time, the oil price was around $116 a barrel, and the Chancellor vowed to reverse the move if the oil price fell below $75 a barrel. The benchmark Brent crude price was trading at around $60 a barrel yesterday.
A series of measures aimed at increasing investment in the North Sea were introduced, including a £3bn new field allowance for fields to open up west of Shetland, the last area of the basin to be developed.
The Chancellor introduced a further £500m field allowance for large shallow-water gas fields with the aim of “securing future investment in North Sea gas, creating jobs and bolstering the UK’s energy security”.
The Treasury guaranteed tax relief on North Sea decommissioning expenditure.
Osborne introduced a new allowance for ultra-high pressure, high temperature fields, following recommendations in the Wood Report. The measures, which reduce the amount of profits arising from “cluster area” oil and gas projects that are subject to the supplementary charge, came into force after the 2014 Autumn Statement.
AUTUMN STATEMENT 2014
The supplementary charge was cut to 30 per cent. The ringfenced expenditure supplement, which allows firms to roll losses forward into the next tax period, was extended from six years to 10.