Energy experts at professional services firm EY have urged the UK Government to usher in tax breaks to help extend the life of the North Sea oil and gas industry.
Its message echoes earlier calls, including from industry body Oil and Gas UK, Aberdeen and Grampian Chamber of Commerce and Aberdeen University petroleum economist Alex Kemp, for Chancellor George Osborne to deliver concessions in his autumn statement next week.
The mini-Budget may coincide with the publication of findings from the Treasury’s review of the current North Sea tax regime.
Derek Leith, EY’s UK head of oil and gas taxation and Aberdeen office managing partner, believes recent comments by key government figures are encouraging.
But he also outlined a number of possible changes to support the industry’s long-term competitiveness.
He said: “A recent speech delivered to the Energy Institute by Chief Secretary to the Treasury Danny Alexander indicated that the government has listened carefully to representations made by industry and is prepared to lessen the tax burden on companies operating in the North Sea in a bid to maximise the recovery of resources.
“There was also an acknowledgment that the issues are complex and that further consultation will be necessary.
“While we realise that wholesale alterations to the current regime cannot be implemented instantaneously, we believe that an immediate reduction in the tax rate is necessary.
“Virtually all new fields granted development consent since 2011 have benefited from some form of field allowance.
“This strongly suggests that the current headline rate is too high for the maturity of the basin.”
EY also recommends the introduction of a single field allowance for the whole UK North Sea, based on a percentage of all capital expenditure incurred, to replace the many different field allowances currently in existence.
“We also suggest that the government considers reducing the rate of petroleum revenue tax (PRT) to 0% to stimulate further investment in fields subject to PRT and initiates changes to the capital allowances regime to encourage infrastructure transactions,” Mr Leith said.
He added: “At the very least, we hope that the recommendations made to the review will form the basis of a road map setting out the future direction of the administration of the basin.”
Mr Leith said relatively low oil prices and high costs mean “action has to be taken to address decreasing levels of investment, activity and, consequently, tax revenues”.
Recommended for you
