The under pressure oil industry has received a much needed set of tax breaks from Chancellor George Osborne, having been hit hard over the past six months by a severe dip in ‘black gold’ prices.
Osborne unveiled in his budget a major overhaul of the North Sea tax regime, including abolishing the Petroleum Revenue Tax and cutting the existing supplementary charge for oil companies from 20 per cent to 10 per cent.
Both measures will be backdated – effective from the first of January this year – and will provide a major boost for Scottish workers and industry.
Popular move: Scottish politicians and businessmen welcomed the tax breaks, although some said support for the oil and gas industry did not go far enough
Low oil prices have caused heavy job losses in Scotland’s oil-rich northeast and sapped Scottish public revenues.
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 in taxes, but the oil price has continued to fall so we need to act now for the long term.’
He added: ‘I am today cutting in half the Supplementary Charge on oil and gas from 20 percent to 10 percent. And I’m effectively abolishing Petroleum Revenue Tax too.
‘We are only able to provide this kind of support to the oil and gas industry because of the broad shoulders of the United Kingdom. None of this support would have been remotely affordable if … Scotland had broken away.’
The tax changes will save the industry around £1billion in the five financial years to 2020-2021, the budget document showed.
Shares in oil companies with fields in the North Sea – including BP, Shell and Cairn Energy – have risen this afternoon on the new.
The tax breaks will come as a welcome relief for oil majors.
A recent report by industry body Oil and Gas UK said that less than £1billion was expected to be spent on new projects this year, compared to a typical £8billion per year in the past five years.
BP, Shell and Statoil, have all slashed their budgets by billions of dollars as they grapple with a 70 per cent fall in prices.
Brent crude currently stands at just under $40 a barrel, about 27 per cent lower than it was a year ago and a fraction of its mid-2014 high of $115 a barrel.
Earlier this year, Prime Minister David Cameron announced a £20million funding package to help the North Sea oil and gas sector.
Scottish politicians and businessmen welcomed the news, although some said support for the oil and gas industry did not go far enough.
Derek Leith, head of Oil & Gas Tax, at EY said: ‘Today’s announcement of a 10 per cent cut in corporate taxes, and the effective abolition of Petroleum Revenue Tax for the UK oil and gas sector will fall short of industry expectations.
‘Since 2011 there has been a compelling case to lower the tax burden to recognise the maturity of the basin, the high cost base, and the falling production efficiency of older assets which support vital offshore infrastructure.’
He added: ‘The case for a significant change to the oil and gas regime has been exacerbated by the collapse in the oil price. Decisive action by the government was required to send a strong signal to investors.
‘Today’s changes, while welcome, are a missed opportunity to be more radical and abolish supplementary charge completely which would have simplified the regime by sweeping away the complexity of investment allowance and its interaction with decommissioning losses.’