Experts warn UK North Sea corporation tax is still too high

Jessica Morris
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Cabinets From Both UK And Scottish Governments Meet In North East Scotland
The North Sea oil and gas industry has been battered by persistently low oil prices (Source: Getty)

One of the world's leading petroleum economists has warned that the rate of corporation tax for North Sea oil and gas companies is still too high and "far above" that of its competitors.

North Sea oil and gas companies pay a special rate of corporation tax at 30 per cent. In the March budget, tumbling oil prices prompted former chancellor George Osborne to cut the supplementary charge on this from 20 to 10 per cent and effectively abolish the petroleum revenue tax.

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But Professor Alexander Kemp and research partner Linda Stephen's new paper entitled "How can the North Sea oil and gas industry be revitalised?" found a direct cut to corporation tax would better encourage investment.

Energy Voice reported that the research said: "On small fields where the pre-tax returns were quite modest, the reduced rate of relief could be more important than the reduction in the tax rate on income."

"On larger fields and on small fields with higher oil prices, the reduced tax on income is more important than the reduced rate on relief."

"Reductions in the rate of corporation tax rather than the supplementary charge were found to be the more potent in incentivising new investments. In current circumstances there is a case for reducing the corporation tax rate which, at 30 per cent, is now far above the non-North Sea rate."

But the pair added that more must be done to exploit the North Sea's undiscovered reserves. The industry's cash pot for exploration activities has been whittled away by the oil price rout which started two years ago.

"The painful cost reductions currently being implemented are a regrettable necessity," they said.

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"To facilitate the development of the many uneconomic fields, including small pools, technological advances are necessary."

"Expenditure on research and development in the fossil fuels segment of the energy sector has been relatively low for a considerable number of years."

"There is a need to enhance this if the recovery factor is to be significantly improved. The new oil and gas technology centre will hopefully be a major catalyst in this area."