Back in March when George Osborne delivered his final pre-election Budget, the key question was whether voters would reward him for the up-turn in the UK economy. The answer, at least south of the Border, was quite clear as the Conservatives secured a surprising majority victory on 7 May. Elsewhere here in the North East of Scotland, people would be forgiven for wondering what might be in store for them following the cold that the oil and gas industry has caught over the past year.
Last month, Treasury minister Damian Hinds pledged that the new UK Government would continue to support the oil and gas sector, and industry chiefs will be looking for the Conservatives to build on a number of tax breaks announced in the March Budget.
These included cutting Petroleum Revenue Tax (PRT) from 50% to 35%, aimed at supporting production in mature fields. The supplementary charge was also cut from 30% to 20%. Together with changes to the investment allowance, the hope is that this means operators will continue with new field developments. A £20million fund was also made available for companies undertaking seismic surveys in under-explored areas of the UKCS.
These measures are predicted to be worth around £1.3billion over five years, with the potential to boost North Sea oil production by 15% by the end of the decade.
The talks at last month’s Fiscal Forum saw the UK Government confirm its intention to continue supporting the oil and gas sector, potentially further expanding the scope of the investment allowance, and supporting exploration and access to infrastructure.
Following recent reports that the oil price has stabilised at around $60-65 per barrel, this is a ray of hope from the government as the industry looks to plan ahead and formulate budgets for the longer term.
We will also likely see a further tightening up of avoidance rules with an increase in the remittance charge for non-domiciled residents, and a possible reduction on the ability to inherit non-dom status – although this is unlikely to affect most foreign personnel working in the UK oil and gas sector owing to the limited timeframes that such workers are typically here. We may also see a widening of criminal offences such as the introduction of a strict liability criminal offence for failing to declare offshore income or gains.
Despite the Nationalist’s near sweep of Scotland (which was far more devastating for Labour and ultimately neutral for the Tories who maintained their single MP), Mr Osborne will undoubtedly be on the front foot when he announces a summer Budget on Wednesday. Delivering this statement as the Chancellor of a majority Conservative Government is a scenario few would have predicted just a few months back.
We’ll know the finer details by Wednesday but overall you can expect this statement to set the tone of how the Conservatives plan to govern over the next five years. Let’s hope that the positive announcements for the UKCS made in March are an indication of what is to come now that they are a single-party government.
Richard Britten is a tax director at chartered accountants and business advisers Johnston Carmichael.
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