Tax shake-up to slow oil decline: Treasury announces new stimulus package to boost North Sea production
A new stimulus package to boost production of North Sea oil was unveiled by the Treasury yesterday.
The proposed reforms are designed to reduce the overall tax paid by companies and encourage oil firms which have been hit by falling prices and spiralling costs to drill for ‘black gold’ in the North Sea.
They include plans to introduce a single ‘basin-wide’ tax relief for all oil fields. The Government hopes that by simplifying the complex system of tax incentives it can encourage investment, and slow the dramatic decline of North Sea oil production which has blown a hole in the nation’s finances.
It said it would also consult with the industry – which boasts some of Britain’s biggest quoted companies – on measures to stimulate exploration, including financial support and tax credits for seismic surveys in underexplored offshore areas.
Other incentives include allowing oil firms to cut their tax bill by offsetting costs against profits for up to ten years instead of the current six-year period.
Chief Secretary to the Treasury Danny Alexander announced the package during a meeting in Aberdeen with representatives from the oil industry, and said it would be finalised by next March’s Budget.
Describing it as an ‘ambitious package to continue to support this hugely valuable sector’, he said: ‘We’re incentivising and working with the industry to develop new investment opportunities and support new areas of exploration. This will help ensure that the industry continues to thrive and contribute to the economy.’
The plans failed to cheer investors with shares in Tullow Oil (12.2p lower at 408.9p), BP (9.95p worse at 426.9p), Shell (30p lower at 2229p) and Petrofac (15p down at 791.5p).
But the measures were given a cautious welcome by the oil industry. Malcolm Webb, chief executive of industry group Oil and Gas UK, said: ‘We are encouraged to note that fiscal policy will now be framed in the context of the sector’s wider economic benefits and will also take account of the global competitiveness of the industry in terms of commodity prices and costs.’
Chancellor George Osborne announced a first attempt at tackling the oil and gas tax regime during Wednesday’s Autumn Statement when he introduced a two percentage point cut in a supplementary oil tax charge.
This reduces the tax charge for most firms from 62 per cent to 60 per cent.
The stakes are high, with the drop in production and a fall in prices cutting tax receipts. This week the Treasury’s independent watchdog, the Office for Budget Responsibility (OBR), cut its forecasts for tax receipts from oil and gas for 2015/16 to £2.8billion – down £1.6billion from its March prediction.
This marks a dramatic decline from £12.4billion in 2008/9 when oil hit $147 a barrel. The oil price has fallen 40 per cent since July, hitting $69.50 yesterday.
An independent review carried out by oil industry veteran Ian Wood estimated in February that around £200billion worth of oil and gas is still trapped in the North Sea.
The OBR estimates that stimulating high levels of production could bring in £28billion in extra tax income between 2020 and 2040.
Most watched Money videos
- German car giant BMW has released the X2 and it has gone electric!
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- Iconic Dodge Charger goes electric as company unveils its Daytona
- Dacia Spring is Britain's cheapest EV at under £15,000
- Skoda reveals Skoda Epiq as part of an all-electric car portfolio
- Mini unveil an electrified version of their popular Countryman
- MG unveils new MG3 - Britain's cheapest full-hybrid car
- The new Volkswagen Passat - a long range PHEV that's only available as an estate
- Steve McQueen featured driving famous stunt car in 'The Hunter'
- BMW's Vision Neue Klasse X unveils its sports activity vehicle future
- Mail Online takes a tour of Gatwick's modern EV charging station
- How to invest to beat tax raids and make more of your money
- EasyJet narrows winter losses as holiday demand...
- 'I'm neither hero nor villain', insists disgraced fund...
- Neil Woodford is back as a finfluencer: You may remember...
- How LVMH is going for gold at Paris Olympics: Luxury...
- Almost a quarter of forecourts are already charging more...
- Foxtons hails best under-offer homes pipeline since...
- Co-op Bank agrees possible £780m takeover by Coventry...
- G7 fights for Ukraine cash as Russia's economy booms -...
- MARKET REPORT: Airlines soar as Easyjet eyes a record summer
- Hipgnosis agrees £1.1bn takeover deal by Concord Chorus
- BUSINESS LIVE: EasyJet winter losses narrow; Hipgnosis...
- My husband managed all my money. Now he's left me, what...
- Rentokil shares slip as investors mull mixed picture on...
- AJ Bell shares jump as it tops 500,000 DIY investors with...
- Dunelm shares slip amid 'challenging sales environment'
- Deliveroo returns to order growth as international trade...
- Hunt raises alarm over bid for Royal Mail as 'Czech...
- Average car insurance bills rocket to almost £1,000:...