George Osborne was under fire last night after failing to offer any new Budget incentives to address the slump in North Sea exploration.
The chancellor was accused of “tinkering around the edges” at a time when the offshore sector needed decisive action to help its recovery.
In March, the industry hailed a package of Budget measures that included a complete reversal of the infamous 2011 supplementary charge raid, as well as a surprise 15% cut in the petroleum revenue tax, and new tax allowances.
Mr Osborne confirmed that they would go ahead in his post-election Budget yesterday, and said he would extend tax breaks so they cover the leasing of production vessels, maintenance work, and money spent on improving production efficiency.
The move should benefit about 125 firms and cost the government about £5million a year.
But Robert Gordon University professor Alex Russell said the measure “falls far short” of what the industry required, and suggested that offshore firms should now just pay the standard 20% corporation tax rate, with no extra levies.
Deirdre Michie, chief executive of Oil and Gas UK, welcomed the allowance extension, but added: “HM Treasury had already proposed in the March Budget to consult on further measures to support exploration, improve access to decommissioning tax relief and reform the fiscal treatment of infrastructure and with the summer Budget now behind us, it is imperative HM Treasury now commence these consultations to ensure the fiscal regime drives investment through the downturn.”
Callum McCaig, SNP energy spokesman and Aberdeen South MP, said: “Whilst what was in the Budget in March was welcome, there was a clear desire from the industry, and certainly from the SNP, for significant movement on exploration.
“There’s a small increase in the investment allowance bit’s really tinkering around the edges.
“We’re at a crossroads. There’s an onus on the industry to reduce costs and make the industry more viable, but the government could have done more to help today.”
Graeme Lewis, group commercial director at Air Energi, said: “It’s disappointing to see that there have been no further oil and gas tax breaks announced in the latest Budget. Considering the challenges being faced by the industry in the North Sea, there is a real chance that this approach will risk more jobs in the sector.”
Alex Kemp, a University of Aberdeen petroleum economics professor, said: “Ideally, more measures might have been expected but those who were close to the process of decision-making would know there was not much time available for specialists in the Treasury to come with other schemes.
“I think there is room for some optimism looking towards the autumn statement.”
Martin Findlay, partner and head of tax with KPMG in Aberdeen, said tax was just a piece of the North Sea’s solution.
He said: “While there was no new oil and gas specific content in the Budget there is a clear indication from Treasury that it will continue to consult with industry and the Oil & Gas Authority on additional fiscal measures to support the goal of maximising economic recovery in the UKCS. The Government’s commitment to the industry remains positive but It is hard to predict at this stage how long it will take for new exploration to start in the UK sector, current market conditions being something that tax alone cannot deal with.
“The Chancellor cannot control global commodity pricing and many of the issues faced by the industry can only be addressed by the operators, service companies and the supply chain working in new ways that reflect today’s market conditions.
“From a wider perspective, the 2% cut in corporation tax effective in two stages from 2017 is a welcome and perhaps unexpected step. This will be of benefit to the UK’s full spectrum of industries and send a strong message to the markets that the UK is committed to being a competitive location for global businesses, whilst at the same time being tough on tax avoidance with new measures aimed at companies and individuals.”
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