As the international oil price tumbles below $50 a barrel, the Chancellor is preparing plans for further tax cuts to support the North Sea oil and gas sector. Mr Osborne has acknowledged that: “more action” was needed. He said he could not pre-empt the Budget, but hinted strongly there could be a “further reductions in the burden of tax on investment in the North Sea.”
This is in response to warnings from the sector about the impact the falling oil price is having, the suggestion being that the industry is at risk without major changes. Companies operating fields, discovered before 1992, can end up with handing over 80% of their profits to the Chancellor; post-1992 discoveries carry a 60% profits hit. In the Autumn statement a 2% tax cut was promised for this year onwards. However, trade body, Oil & Gas UK has been calling for a much greater tax cut of around 30% and a review of the sectors tax structure.
The picture is summed up by Oil & Gas UK’s Economics Director, Mike Tholen, who is quoted in the press as saying: “If we don’t get an immediate 10% cut, then that will be the death knell for the industry.”
The industry are also pinning their hopes on a tax cut of a further 20% in future, to support investment. The wholesale oil price has fallen by around 60% over the last five months, forcing operators in the relatively high cost North Sea sector to take urgent action on their operations and forward plans.
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