Budget 2015: £1.3bn package to boost oil sector

The funding package will help boost the North Sea oil sector. Picture: PA

Chancellor George Osborne’s package of tax cuts were greeted enthusiastically, although there were those who maintained the action should have been taken much earlier.

Mr Osborne said the UK government will reduce Petroleum Revenue tax from 50 per cent to 35 per cent to encourage investment in older fields.

This will be accompanied by a cut in the supplementary charge – levied on ring-fenced profits – from 30 per cent to 20 per cent.

• Budget 2015: As it happened

The reduction in the supplementary charge follows the 2 per cent cut announced in the last Autumn Statement and will be backdated to January.

The Chancellor said the tax breaks would amount to a support package worth £1.3bn.

A new investment allowance to drive more cash injections into the industry will be available on expenditure incurred after April this year.

A fund of £20 million will be provided for seismic surveys in under-explored areas of the UK continental shelf in 2015-16 to see if more deposits can be exploited. The Chancellor also promised to make sure the Oil and Gas Authority has the powers it needs to scrutinise companies’ plans for decommissioning programmes to ensure they are economic.

• Budget ‘Ready Reckoner’ (PDF)

Making the announcement, Mr Osborne could not resist making a political point at the expense of the SNP arguing that such generous measures could not have been funded had Scotland voted Yes last year.

“An independent Scotland could never been able to afford such a package of support. One of the strengths of our 300-year Union is that just as we pool resources we share challenges. We are one United Kingdom,” he said.

Malcolm Webb, the chief executive of UK Oil and Gas, welcomed the Chancellor’s announcement. “These measures send exactly the right signal to investors. They properly reflect the needs of this maturing oil and gas province and will allow the UK to compete internationally for investment,” Mr Webb said.

“We also welcome the government’s support for exploration announced today. With exploration drilling having collapsed to levels last seen in the 1970s, the announcement of £20m for the newly formed Oil and Gas Authority to commission seismic and other surveys on the UK continental shelf (UKCS) is a very positive step.”

Osborne’s Agincourt jibe at SNP

Meanwhile the Conservatives pounced on new figures from the Office for Budget Responsibility (OBR) predicting that £600m in revenues would be generated by the industry in 2016-17 – less than one tenth of the £6.8bn forecast in the SNP government’s independence white paper.

The Scottish Government finance secretary John Swinney said his administration had consistently argued for North Sea tax breaks.

He said: “The Scottish Government has been calling for such measures, along with the industry, for some time. Today’s measures are a glaring admission by the Chancellor that his policy for the North Sea has been wrong and the poor stewardship by the UK government has had a detrimental impact on our oil and gas sector and the many people who work in the industry.

“It has taken the Chancellor four years to admit the tax rise he implemented in 2011 was a mistake. A heavy price has been paid for this mismanagement. Today I cautiously welcome the U-turn by the UK government to take action on the future of the North Sea.”