Oil & Gas UK has called for drastic tax cuts to save Britain’s North Sea oil sector as the price of Brent crude continues to tumble.
Malcolm Webb, the industry trade body’s CEO, said urgent and fundamental changes were needed to the current tax system amid the growing threat to North Sea investment and jobs from the falling oil price.
"The credible and reasonable response for the Chancellor in his upcoming budget, assuming the oil price has not recovered by then, is the abolition of the 30% supplementary charge on corporate tax," said Webb.
"This would still leave oil and gas producers paying corporation tax at 30%, a tax rate that’s still 50% higher than the rest of British industry."
The call comes as the price of Brent crude yesterday dropped as far as $45.19 a barrel, its lowest level since 2009, before recovering to finish the day at $46.59. An estimated £2bn of future spending on pre sanction UKCS projects is already at risk, according to consultancy group Wood Mackenzie.
IHS analysts believe the Chancellor is likely to take some form of action to prop up the ailing North Sea industry – possibly in the form of a tax cut – though it remains unclear how soon such measures could be announced.
"I don’t expect anything significant before low prices have been around for a longer period and the new Oil and Gas Authority is up and running. We would expect clarification to come with the 2015 budget," said IHS senior analyst, Kevin Le Grand.
"In making its decision, the government will be weighing up the number and success of exploratory drilling projects, as well as production levels and tax revenue contributed by the industry."
Le Grand added that final investment decisions and EOR funding were being hit particularly hard by the low prices.
In last year’s autumn statement, George Osborne announced an immediate 2% reduction on the corporate tax supplementary charge, bringing the rate down to 30%. He also promised to support the ailing North Sea sector through a new, simplified investment allowance and to finance a seismic survey programme.
Commenting on the situation, a Treasury spokesperson said:
"The government is following developments in the North Sea closely and is working with industry leaders as a matter of priority to address the challenges the sector faces."
