Scot-Govt. urges Osborne to cut UK taxes on N. Sea oil investment and exploration

Marathon Oil Brae Alpha rigThe Scottish Government has today urged UK chancellor George Osborne to bring in tax cuts to boost investment in exploration for new oil finds in the North Sea in his next budget

In a letter to Osborne, the John Swinney, Scotland’s Deputy First Minister, said that without urgent action there was a risk the low oil price could lead to the premature decommissioning of North Sea assets and further job losses.

It is estimated that 10,000 direct jobs have been lost in the industry – mostly in Scotland – amid a total of 65,000 wider redundancies in the UK supply chain since the price of crude oil plummeted from more than $110-barrel in 2014 to around $30-barrel today.

Even after the two governments announced special funding of more than £500 million in the Aberdeen city and shire region deal earlier this month, the UK Oil and Gas industry said that action on tax-breaks was still needed.

Swinney has today set out four key actions that the UK Government must take to improve the fiscal regime and support the long-term future of the industry. These are:

  • • A substantial reduction in the headline rate of tax, with the primary objective of creating an internationally competitive tax regime in the North Sea
    • Removal of fiscal barriers for exploration and enhanced oil recovery (EOR)
    • Fiscal reforms to improve access to decommissioning tax relief and encourage late life asset transfers. This will reduce costs and help prevent premature cessation of production
    • Urgent consideration of additional non-fiscal support, such as government loan guarantees, to sustain investment in the sector
John Swinney, MSP
John Swinney, MSP

He said: “The North Sea oil and gas industry is facing substantial challenges. The industry, unions, and the Oil and Gas Authority have all raised concerns about the loss of highly skilled workers, and confidence levels are now at their lowest since records began in 2009.

“The Scottish Government will continue to do all it can to support the sector. It is clear, however, that the UK Government must take urgent action to reduce the headline rate of tax at the March Budget. The fiscal regime must not be a barrier to investment and activity in the North Sea.

“If the stated aim of your government is to Maximise Economic Recovery, this must be reflected in the design of the taxation system. The North Sea must be considered a competitive international region for investment, with fiscal stability and predictability at the centre of the tax regime over the longer term.

“In addition to addressing the tax burden, a commitment must also be provided that there will be no tax increases over the course of this UK Parliament, with mandatory industry consultation on all significant policy proposals.

“I believe there is a real risk that the low oil price could lead to critical infrastructure being decommissioned early. That is why I have called on the Chancellor to use his March Budget to improve access to decommissioning tax relief and encourage late life asset transfers.

“Exploration activity remains at historically low levels. Recently published analysis by Professor Alex Kemp outlines a number of interventions that could be made to improve the way the tax system incentivises exploration, including improvements to the investment allowance. Additional support for exploration should be announced at the 2016 Budget.

“The UK Government must also consider all options available to facilitate new investment in the sector, including the potential for additional non-fiscal support, such as government loan guarantees.”

The whole of UK’s oil and gas industry is under intense pressure in the current business environment of sustained low oil prices. The industry is working closely with both the Scottish and UK Governments and its regulator, the Oil & Gas Authority, to adapt.
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