A UK public finance think-tank has criticised the North Sea tax system as “unduly complex” and lacking “clear design”.
The Institute for Fiscal Studies warned that any more changes to the UK Government’s policy should come with a “clear strategy” for the oil and gas industry.
A report published yesterday tells ministers that in the future the fiscal regime should be more “predictable”, to reduce the uncertainty which deters and “distorts” investment.
The impact of surprise alterations to the government’s policy for the sector was witnessed in 2011 when Chancellor George Osborne’s shock £10billion tax on producers almost killed off new investment overnight.
The IFS also highlighted forecasted falls in oil and gas revenue for coming years. “The loss of revenue is of some importance in a UK context. It would, of course, be a much more important issue for an independent Scotland,” it said.
On the overall Treasury tax system for the industry, the IFS said: “The taxation of North Sea companies has undergone many incremental changes by many governments. The result is a system that incorporates distortions, is unduly complex and lacks design.”
It also said it would be “difficult to redesign the whole system”, but that any government “looking to enact changes can, and should, seek to set out a clear strategy for what it is aiming to achieve and how it thinks oil and gas extraction should be taxed”.
It added: “Policy going forward should at least aim not to make the system more complex or distortionary and preferably should try to make changes more predictable.”
Economics director of industry body Oil and Gas UK, Mike Tholen, said: “We agree wholeheartedly with IFS that predictability in the UK oil and gas tax regime is crucial to investor confidence and to the attractiveness of the UK continental shelf as an investment destination. Too often in the past, unexpected tax changes have damaged investor confidence, depressing investment and reducing production and tax revenues.
“However, over the last 18 months, the industry has worked constructively with the Treasury to find targeted ways to promote new activity and this work is now bearing fruit with over £8billion of new investment and 6,000 new jobs having been announced in the last six months alone.”