The Treasury is unlikely to reverse North Sea tax breaks in the upcoming Budget amid industry warnings it could cause “irreversible damage”, it emerged last night.
Former chancellor George Osborne put in place a string of tax measures during the downturn to support the sector.
Press reports earlier this week suggested these were now “under scrutiny”, with the UK Government seeking to grow oil revenues.
Leading industry and academic figures have said any change to steps put in place in 2015 and 2016 to support the sector would “jeopardise” its long-term future.
But Energy Voice understands the Treasury is not seeking to change the current North Sea tax regime.
A source said it was not being looked at for November’s Budget –and to do so would go “completely against” the government’s strategy to drive investment.
Oil prices suffered a free-fall to $35 a barrel after the downturn hit, but they have since recovered to more than $70.
Any tax increase would be hugely damaging, according to Oil and Gas UK upstream policy director Mike Tholen.
He said: “It would smack of short termism and cause irreversible damage to the future of this long-term industry.
“As we recover from the severest downturn in this industry’s history, our challenge is to keep attracting new investors to the UK continental shelf.
“While profitability has returned to many upstream companies, our supply chain is still struggling.
“Despite the maturity of the basin, we are seeing a recovery in activity.
“This is a positive response to the close collaboration between the government, regulator and industry, and a shared aim to maximise economic recovery from the basin.”
Mr Tholen is “confident” the Treasury will continue to pursue stability for the North Sea.
Some of the measures put in place by Mr Osborne included a reduction in petroleum revenue tax, cuts to the levy on profits and the introduction of investment allowances.
Aberdeen University oil and gas economist Professor Alex Kemp said the industry was not yet ready to have these removed. He added: “The key objective, that the
Treasury has acknowledged, is maximising economic recovery (MER) and any increase in tax would jeopardise that.
“The industry is still in a relatively fragile position, and if he (Chancellor Philip Hammond) did raise taxes, it would dent confidence and almost certainly retard any positive investment.
“If there was an increase, it would call into question the government’s long-term MER strategy. It would jeopardise investment decisions on some of the undeveloped fields.”
MER is aimed at recovering the maximum amount of oil remaining in the North Sea, with the Oil and Gas Authority estimating this could be worth up to 20 billion barrels of oil equivalent.
The Scottish Government’s 2017-18 revenue figures, published yesterday, showed Scotland’s share of the oil and gas take was up by more than £1 billion on 2016-17.
Prof Kemp said he expected a positive picture for North Sea revenues this year, but he also warned investment was declining. The sector needs continued tax incentives to attract operators, he said, adding: “All the evidence shows there’s still inadequate investment to stop quite a significant decline rate in production. Putting that together, I think it’s rather unlikely the chancellor will raise taxes in the Budget.”