Latest UK budget sees big cuts in North Sea oil and gas taxes
16 March 2016
On March 16, Chancellor of the Exchequer George Osborne announced a major overhaul of the North Sea tax regime in response to difficulties facing the UK oil and gas sector. In his Budget statement, he said Petroleum Revenue Tax (PRT) would be abolished, having cut it last year from 50% to 35%, and the supplementary charge for oil companies would be cut from 20% to 10%, backdated to 1 January.
In his budget speech, 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 in taxes, but the oil price has 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 Britain."
The North Sea offshore industry has been hit hard by plunging oil prices and has shed thousands of jobs in the North Sea over the past year. A recent report by industry body Oil and Gas UK said that less than £1bn was expected to be spent on new projects this year, compared to a typical £8bn per year in the past five years.
Brent crude is currently just under $40 a barrel, about 27% lower than it was a year ago and a fraction of its mid-2014 high of $115 a barrel.
The March 2015 Budget also included a £1.3bn package of measures aimed at easing the difficulties facing the industry and earlier this year, Prime Minister David Cameron announced a £20m funding package to help the North Sea oil and gas sector.
Oil & Gas UK, the sector’s industry association, said it welcomed the Chancellor’s acknowledgment of the challenges facing the industry and said the Budget measures would reduce the headline rate of tax paid on UK oil and gas production from between 50 and 67.5% to 40% across all fields.
Deirdre Michie, Oil & Gas UK’s chief executive, commented:
“Today’s announcement does indeed mark further progress in modernising the tax regime for an increasingly mature basin. 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.”
In other budget news, the chancellor said the ability to import energy would be boosted by increasing the capacity of electricity interconnectors with the continent to nine gigawatts.
On this point, engineering association IMechE said: “Plans to increase our dependence on electricity interconnectors to nine gigawatts is no silver-bullet to meeting the UK’s electricity demand. A greater reliance on interconnectors to import electricity from Europe and Scandinavia is likely to lead to higher electricity costs and less energy security.
"Currently there are insufficient incentives for companies to invest in any sort of electricity infrastructure or innovation. Government needs to introduce measures to encourage reducing electricity demand. We need to take urgent action to work with industry to create a clear pathway with timeframes and milestones for new electricity infrastructure to be built including fossil fuel plants, nuclear power, energy storage and combined heat and power.”