Tax breaks to spur controversial “fracking” for gas in the UK announced by Chancellor George Osborne could be illegal, environmental campaigners have warned.
Mr Osborne said in his Autumn Statement that he would introduce “a new tax allowance to encourage investment in shale gas that halves tax rates on early profits”.
Ministers are strongly backing the use of the hydraulic fracturing process – pumping water underground at high pressure to split rocks and release oil and gas – to exploit UK shale reserves.
They say the emerging sector will create jobs, help reduce energy prices and make Britain less dependent on imported energy.
But opponents have raised fears of the impact on local communities, including the possibility it could contaminate or reduce local water supplies and cause mini-earthquakes.
Friends of the Earth executive director Andy Atkins said: “Handing tax breaks to climate-wrecking fracking firms simply highlights the fact that George Osborne hasn’t done his homework.
“They won’t lower bills, MPs say they are unjustified – and they could be illegal.”
Under the tax break plans, the rate payable on a portion of a firm’s profits is more than halved from 62% to 30% to reflect “the challenging nature of these developments”.
Companies will receive an allowance equal to 75% of their capital spend on a project.
Independent analysis suggested the change would give the UK the most competitive tax regime for fracking in Europe, the Statement said, and more attractive than the US, where fracking has been used extensively.
The Treasury document said exploiting shale would “put downward pressure on wholesale prices and increase the UK’s security of supply”.
“The economic benefits that shale gas could bring – thousands of jobs, billions of pounds of business investment, and lower energy bills – would extend beyond oil and gas to other manufacturing sectors, which is why major industrial employers have publicly supported its development,” it added.
“The new tax allowance builds on the success of offshore field allowances in increasing investment in technically and commercially challenging fields.”
It said the Government was “committed to ensuring local communities benefit from shale gas projects and to streamlining the regulatory framework, while making sure activity is safe and sustainable”.
In the wake of protests at planned drilling sites, communities have been guaranteed £100,000 for every fracked well site and a share of any revenues of at least 1% of revenue – up to as much as £10 million over the lifetime of a project.
See full analysis of the Autumn statement and how it will impact on your business in tomorrow’s Press and Journal
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