In a speech at the Offshore Europe conference in Aberdeen, George Osborne unveiled new Treasury analysis into Scotland’s economy, which highlighted detrimental tax consequences if it chooses to become independent, including a £4bn black hole in its budget by 2016-17 from lost oil revenues.
He also unveiled a final decommissioning contract for the oil and gas industry, which will give companies certainty over the level of tax relief they will receive for taking redundant projects out of service, representing the culmination of 18 months of discussions. It is expected that the first contracts will be signed in the next few weeks, paving the way for further investment in the North Sea.
“This is a very encouraging sign for the oil and gas industry,” Bob Ruddiman, partner and section head for energy and natural resources at Pinsent Masons, told City A.M.
“It will boost investment and create jobs all over the country, benefiting both Scotland and the UK as a whole. It is a significant commitment of ministerial time on the oil industry and long overdue.”
The oil and gas sector has long-campaigned for tax reliefs, arguing that if the government does not encourage investment, explorers will go to places with a far friendlier tax climate, such as Norway. This would in turn increase the UK’s dependence on imports and leave domestic resources untapped.
The announcement follows promises of tax breaks for the shale gas industry last month, which the government hopes will kick-start investment and help unlock the UK’s potentially vast shale resources.
A recent report by the British Geological Survey claimed that the UK is sitting on enough shale gas to power the country for the next 40 years, raising hopes of a US-style shale boom.