THE North Sea oil and gas industry yesterday hailed George Osborne’s decision to offer more tax breaks to bolster investment in the sector.
The Chancellor said income from older fields will be spared from paying full duty to ensure they are fully exploited.
It is the latest in a series of reliefs introduced for the industry after the coalition Government was criticised for hiking the supplementary charge on North Sea producers from 20% to 32% last year.
The new Brown Field Allowance will shield up to £500m of income from the charge when firms are boosting production from established oil or gas fields ... potentially cutting their tax bill by £160m.
The move is expected to cost the Exchequer £100m per year initially, but officials insist long-term tax revenues will be significantly higher.
The industry supports around 66,000 jobs in the North East where there are thought to be around 1,500 supply chain companies.
Mr Osborne said: “The tax allowance is more good news for the North Sea, good news for jobs and good news for the broader economy.
“It will give companies the incentive to get the most out of older fields, creating jobs and delivering more revenue for taxpayers.
“This Government has signalled its absolute determination to get more investment in the North Sea, a huge national asset.
“Just last week, I saw the benefits at a supply chain factory creating many hundreds of jobs in the North East thanks to Government support for North Sea gas which made a major project possible.”
The announcement could attract at least £2bn of investment in the short term and is a step towards a potential 50 years of further activity in the North Sea, according to industry body Oil and Gas UK.
Economics director Mike Tholen said it was “certainly a very good step in the right direction”.
“I think the Chancellor is right to recognise that many of the older fields in the UK struggle to attract new investment and this is a bit of a shot in the arm for them,” he said.
“I’m very well aware that in the short term there are some very substantial projects waiting for this announcement and I’m very confident that there will be some big investments announced.
“We think investments over the next year or so could be at least £2bn better because of the news.”
Alan McCrae, head of UK energy tax at accountants PwC, said: “This is a very helpful step in the right direction and should be warmly welcomed by the industry and taxpayers alike.
“The UK’s current rate of tax for North Sea production is extremely high at 62% for newer fields and 81% for those subject to Petroleum Revenue Tax, and these rates are making some investment unviable.
"By reducing those rates for future production in existing fields, more investment will be stimulated.”