As the Autumn Statement is announced this week, Derek Leith, UK head of oil and gas taxation at EY, has taken up the role of Energy Voice’s guest editor. Follow along each day as he spells out the challenges and triumphs the industry faces.
When George Osborne stands up to address the House of Commons tomorrow it will be his fourth ‘budget’ speech in less than 12 months.
Of course the Autumn Statement isn’t the Budget but in recent times there have often been very significant tax changes announced in the Autumn Statement – one of infamy, for some taxpayers, being the bareboat charter changes in 2013.
This Autumn Statement, however, will be very significant as it coincides with the conclusions of the Comprehensive Spending Review which will cover all areas of government spending for the next four years.
As the government has already committed to producing a surplus by 2020 the focus will very much be on spending cuts.
Part of the Chancellor’s strategy to achieve this surplus suffered a set-back when his tax credit cuts were rejected by the House of Lords, and therefore he has had to reconsider his approach.
That approach also has to navigate through slowing UK economic growth, lower than forecast growth rates from China, a flat or recessionary European market, an apparent crisis in NHS budgets in England, and turbulence in Europe and the Middle East.
The Autumn Statement is likely to set out the Chancellor’s revised plans for tax credit cuts to be phased over a longer period of time to ease the individual impact, or perhaps to be tweaked so that the lowest paid are protected from the impact.
That could be funded in a number of ways: by eating into the surpluses currently forecast at the end of the term of the current parliament; or by increasing borrowing in the near-term; or by even greater than planned cuts in expenditure in certain government departments (the so-called ‘unprotected departments’ who will have to shoulder cuts estimated at almost £24bn); or by tax increases.
Given the Government’s election commitment not to increase income tax, national insurance, or VAT then tax increases aren’t a likely candidate, and either of the first two options look more probable.
Where does all of that leave the oil and gas industry? Very clearly with no real prospect of any positive fiscal change in the Autumn Statement.
As far as the government is concerned the UK oil and gas industry has to demonstrate it is a viable, internationally competitive industry, at the current low oil price.
With the new regulator, the Oil and Gas Authority, in place the industry can hope to see further support from the government in the fullness of time.
But that is likely to be in the form of changes to tax policy to facilitate asset trading, infrastructure longevity and where possible to encourage exploration – rather than in making changes which have a direct impact to the Government’s finances.
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