A substantial tax break for new investment in “marginal” oil developments offshore is expected in tomorrow’s Budget.
Chancellor Alistair Darling is considering a cut of up to 40% in tax on a limited amount of oil from fields that are new and hard-to-exploit or old and depleted in an attempt to boost production and raise his overall tax take.
The “value allowance” is one of the weapons Mr Darling is thought likely to deploy to secure a 20% increase in output from the North Sea.
It is one of the few rays of sunshine in an otherwise gloomy Budget for jobs, in which he may admit it will take a decade to pay off debts racked up in an effort to spend his way out of the recession.
West Aberdeenshire and Kincardine Liberal Democrat MP Sir Robert Smith said he hoped Mr Darling would go further than the predicted “value allowance” and introduce upfront tax relief for small entrants to the offshore industry lacking the profits against which to set the cost of new developments.
Aberdeen North Labour MP Frank Doran predicted: “There will be some encouragement for exploration and appraisal.
“It is important we maintain the flow of investment into the North Sea.”
Oil and Gas UK economics director Mike Tholen said he was encouraged by reports that the chancellor planned to implement measures to increase North Sea production by 20%.
Mr Darling — who has been warned that, without his intervention, 50,000 jobs will be at risk — badly needs the revenue an offshore revival could bring to reduce government borrowing feared likely to surge to £170billion this year.
Speculation about the content of the Budget package — expected to include £500million in job-creation measures and a £15billion increase in Whitehall “efficiency savings” — rose as MPs reassembled at Westminster after a fortnight’s Easter break.
They faced immediate criticism for planning a further 12-week holiday over the summer in the midst of the worst downturn in the economy for years.
Meanwhile, the Liberal Democrats pledged a £700-a-year tax cut for those on low to middle incomes by raising the tax-free personal allowance to £10,000 a year.
Scottish Liberal Democrat leader Tavish Scott told an audience in Inverness the aim was to give money back to families and individuals hit by the recession.
Inverness, Nairn, Badenoch and Strathspey MP Danny Alexander, chief of staff to Liberal Democrat leader Nick Clegg, said the cut would be paid for by a crackdown on tax loopholes exploited by the wealthy that would spread the burden more fairly.
He added: “With average incomes in the Highlands lower that the rest of country, these plans will be particularly beneficial here.”
Labour MPs are hoping a reassuring performance from “Mr Calm” — as the unflappable-looking chancellor is becoming known — will steady the money markets.
He is likely to admit the downturn has been sharper and more prolonged than he expected a few months ago and to concede some of the cost of bailing out the banks may be difficult to recover, at least in the short term.
He is expected to add a green tinge to his Budget with £100million to better insulate council houses and some £200million to boost wind and wave power. There may also be a scrap-and-buy scheme to encourage the purchase of less-polluting, low energy-using new cars.
The package is certain to come under attack from the SNP which flatly opposes the £500million “cut” in the Scottish budget resulting from a share in overall spending reductions across the UK.
Dundee East MP Stewart Hosie, the SNP’s Treasury spokesman, warned: “Slashing public spending in the teeth of a recession will only add to the anxiety of households and high streets.”
It was, he added, the exact opposite of the economic stimulus of President Barack Obama in the US and would cost 8,700 Scottish jobs. “This dangerous move will seriously set back economic recovery.”
Recommended for you
