Budget 2017: Environmental groups question North Sea tax break

Oil rig - image credit: Steven Straiton

Environmental groups have questioned how the chancellor’s decision to provide tax support to the North Sea oil and gas industry will affect the UK’s efforts to tackle climate change, warning the move “will increase our climate emissions at a time when we need to rapidly moving away from fossil fuels”.

The oil industry welcomed news that Hammond will allow the tax history of oil and gas fields to be transferred after a sale, which would allow buyers to claim greater relief when it comes to decommissioning.

With the price of oil still stubbornly low, the move aims to make mature oil and gas fields more attractive to investors.

But WWF Scotland said the will increase our climate emissions at a time when we need to rapidly moving away from fossil fuels.

Dr Sam Gardner, acting head of policy at WWF Scotland said: “It seems strikingly contradictory that only days after attending the UN climate conference in Bonn, the UK Government has announced a new way to encourage the exploration of more fossil fuels from the North Sea.

“While it's true that the oil and gas industry will continue to be a major contributor to our economy for some time, now is the time to be setting out a clear plan to sensibly transition away from dirty fossil fuels.”

Oil and gas companies have previously claimed that the current system, which sees investors held financially responsible for high decommissioning costs when production ends, has deterred buyers from buying assets in the North Sea.

The policy change, which will be in place by November 2018, is expected to save the Treasury an average of £10m per asset in deferred tax relief.

Deirdre Michie, chief executive of Oil & Gas UK, welcomed the move, saying it was a “vital step that can bring in new investment to increase recovery from existing fields and fund fresh investment”.

She said: “While there have been a number of deal announcements in the basin over the last year, these have mostly been for less mature assets, have been extremely complicated and taken a very long time to negotiate. This tax measure should help complete deals more quickly and in a more efficient way.

“Prolonging the life of mature assets better allows the industry to deploy its skills and technology to maximise extraction of the UK’s oil and gas, increasing production tax revenues to the Exchequer and securing highly-skilled jobs.”

Derek Leith, EY’s head of oil and gas tax, described the change as a “clear demonstration that the government wishes to maximise the value of the UK’s remaining hydrocarbon reserves”.

He said: “The proposed changes, the details of which will be worked through in 2018, have the potential to revitalise the UK oil and gas industry. They will enable the current owners of mature producing fields to pass some of the corporate tax history of the current owner to the buyer, thus enabling the buyer to be in broadly the same tax position as the seller.”

Friends of the Earth Scotland director Dr Richard Dixon expressed disappointment that the budget contained no new support for the renewables industry, with the Government still pursuing “the twin dead ends of nuclear power and fracking”.

He said: “The tax break for sales of oil fields is another subsidy aimed at extending the life of North Sea oil and gas production and will increase our climate emissions at a time when we need to rapidly moving away from fossil fuels.

“If the Chancellor was serious about supporting workers currently dependent on the North Sea, he’d be planning to ensure that the transition to the new low carbon economy was inclusive of these people and their communities.”