For the UK Oil & Gas industry, today’s Autumn Statement by British Chancellor of the Exchequer George Osborne, offered the first cut in tax rates for the UK North Sea in 21 years.
“There is record investment this year in the North Sea, but the lower oil price clearly presents a challenge to this vital industry,” Osborne said. “[The tax cut] demonstrates our commitment to the tens of thousands of jobs that depend on this great British industry.”
Osborne said the UK government will implement an immediate 2% reduction in the rate of the Supplementary Charge from 32% to 30%, taking effect on 1 January 2015. In addition, the government will extend the ring fence expenditure supplement from six to 10 accounting periods for all ring fence oil and gas losses and qualifying pre-commencement expenditure incurred on or after 5 December 2013.
The Autumn Statement also includes an allowance for high pressure, high temperature (HPHT) projects to encourage development within cluster areas. The Statement said the allowance will exempt a portion of a company’s profits from the supplementary charge. The amount of profit exempt will equal 62.5% of the qualifying capital expenditure a company incurs in relation to a cluster from 3 December 2014 onwards.
Industry body Oil & Gas UK called the tax reduction, “an important first step towards improving the fiscal competitiveness of the UK North Sea” and stated further that the UK needs to do more to signal that the UKCS is open for business.
Oil & Gas UK chief executive Malcolm Webb said that the move to extend the ring fence expenditure supplement will help attract new entrants into the UKCS, and brings the offshore industry in line with onshore oil and gas production.
“These can only be seen as first steps towards improving the overall fiscal competitiveness of the UK North Sea,” Webb said. “We will certainly need further reductions in the overall rate of tax to ensure the long term future of the industry. Given the current crisis in exploration, we also need to see measures to promote exploration activity across the basin.”
Webb said while the UK offshore oil and gas industry is facing difficult times, he praised Autumn Statement for showing the important of the industry and its contribution to the UK economy.
Full proposals for the oil and gas industry are expected to be discussed in Aberdeen on Thursday.
Industry comments
Mark Guest, Managing Director of OilCareers.com, noted that in the company’s most recent workforce survey that there were indications that positive attitudes toward hiring in the UK’s oil and gas sector were decreasing. However, Guest says he hopes today’s announcement will create a more positive hiring outlook.
“This is a vibrant industry, which will be around for at least another generation in terms of employment in the northeast of Scotland, and I believe a lot longer,” Guest says. “We just need to make sure we invest and we keep investing, and we train and recruit the right people in to the sector, which means in particular encouraging young people to take maths, take sciences, and seek careers in engineering. That's where this industry is based in terms of the future and in terms of technology and innovation."
Read more
Subscribe
