Budget Boost for Oil and Gas
The Chancellor has said his Budget delivers “the biggest boost to the oil and gas industry in over 20 years”.
The Chancellor has said his Budget delivers “the biggest boost to the oil and gas industry in over 20 years”.
George Osborne set a permanent zero-rate on petroleum revenue tax and cut the supplementary charge.
This is designed to support the industry through the challenging commercial conditions caused by the steep fall in oil prices and benefit UK jobs supported by the oil and gas industry - nearly half of which are in Scotland.
In his address to Parliament, Mr Osborne said: “The oil and gas sector employs hundreds of thousands of people in Scotland and around our country.
“In my Budget a year ago, I made major reductions to their taxes, but the oil price continued to fall so we need to act now for the long term.
“I am today cutting in half the supplementary charge on oil and gas from 20% to 10% and I am effectively abolishing petroleum revenue tax too, backing this key Scottish industry and supporting jobs right across the country.
“Both of these major tax cuts will be backdated so they are effective from January 1 this year, and my honourable friend the Exchequer Secretary will work with the industry to give them our full support.''
Scottish Deputy First Minister John Swinney welcomed the changes, but added: “While the reduction in the headline rate will improve the long-term prospects for the sector, it does not fully address the short-term challenges facing the industry.
“Further clarity is now urgently required on how the commitment to consider loan guarantees and improve access to decommissioning tax relief will be able to support the sector in the short-term.”
Deirdre Michie, Oil & Gas UK's chief executive, said: “We welcome these measures as they will build on the industry's achievements in improving efficiency in the face of low oil prices, boosting the sector's competitiveness and helping to restore investor confidence.
“We will continue to work with the Treasury to complete its 'Driving Investment' plan to ensure that the fiscal regime reflects the business needs of a maturing basin and signals to global investors that the UK is truly open for business.”
Derek Henderson, senior partner at Deloitte in Aberdeen, said: “Today's oil and gas tax package demonstrates that Government has been listening to the acute challenges facing the North Sea in 2016.
“The 10% cut in the supplementary charge and permanent zero rating of petroleum revenue tax, both effective from January 1 2016, combined with additional help for critical infrastructure, bear this out.
“At a time of low oil and gas prices and challenging conditions, headline North Sea tax rates are now globally competitive, now at 40% instead of the 62%-81% they were 18 months ago.
“While the OBR estimates that the proposed changes will reduce the UK North Sea tax burden by #1 billion over the next five years, it is over the longer term that the benefits will be felt by the industry.
"The UK now needs to compete harder for its share of global investment than ever before and retaining activity and expertise during the downturn will be critical to secure the long-term future of the UK North Sea.”
Scottish Labour leader Kezia Dugdale said: “The Chancellor's announcement on support for the oil and gas industry is welcome, but it doesn't go nearly far enough.
“What we needed to see from the Chancellor today was support to make sure that essential infrastructure such as platforms and pipelines are not decommissioned early. That's why Labour is calling for the establishment of a new government agency - UK Oil - to make investments in infrastructure.”
Scottish Conservative leader Ruth Davidson said: “It's been a very difficult time for the oil and gas sector, but this move shows the UK Government's determination to help.
“Today's move will provide confidence within the sector and help support jobs across Aberdeen and the wider north-east.”
Scottish Green MSP Patrick Harvie said: “Recent months have exposed the vulnerability of the Scottish economy to over-reliance on the North Sea oil and gas industry - it's clear that the next generation can't trust on the oil industry to provide them with work and security.
“Osborne's approach to this crisis is short-sighted in the extreme - he has chosen to give yet more tax relief to big oil business while handing over pennies to the renewables sector that, with proper support, could provide quality jobs in years to come.”
Liz Cameron, chief executive of Scottish Chambers of Commerce, said the tax cuts are “a necessary response to the current crisis in the North Sea and a welcome relief”.
Ashley Shackleton, energy spokeswoman at the British Chambers of Commerce, said: “The changes to tax for the UK offshore oil and gas industry won't have a huge immediate impact but will go some way to secure investor confidence in the sector.”
Grahame Smith, Scottish Trades Union Congress (STUC) general secretary, said the Chancellor “could have provided significantly more support to the oil and gas sector, particularly on exploration incentives and investment allowances”.
Alan McCrae, UK head of energy tax at accountants PwC, said the tax cuts are “a smart move that recognises that the tax prize for the Treasury at this stage in the life of the North Sea is not corporate taxes”.
He added: “Instead, the Government has more tax revenue to gain by doing all it can to protect investment and jobs and all the tax that goes with that.”