As the dust settles on Philip Hammond’s first (and last!) Autumn Statement, it is worth taking stock of the impact of the announcement on the oil and gas sector.
Firstly, it was helpful to hear the Chancellor reaffirm HM Treasury’s commitment to the Driving Investment strategy published in 2014, which provided a roadmap towards a predictable, lower tax regime for the North Sea with the overall aim of maximising economic recovery.
There was no reason for the Government to depart from that strategy, but with the changing of the guard in Downing Street it was nonetheless comforting to hear.
The only other oil and gas specific announcement was a rather underwhelming confirmation that some limited Petroleum Revenue Tax (PRT) simplifications are to be adopted. While these will undoubtedly offer an administrative saving for some, I hope they are only the first steps towards a greater reduction of the burden that remains.
No other changes were made to the North Sea regime, and that would not have come as a surprise to many.
With substantial tax rate reductions in recent years, and many companies in a loss-making position, it would have been hard to justify further rate reductions.
While exploration in the North Sea undoubtedly needs to be stimulated in some way, fiscal change is not the only possible catalyst. I hope to see some of the Oil Gas Authority’s efforts in this area come to fruition and increase the volume and effectiveness of exploration activity.
In relation to late-life assets, industry has been informally discussing the impact of decommissioning on the asset transaction market with HM Treasury. While there may ultimately be a need for legislative change in this area, it is appropriate for the Government to consider the case for change carefully. It would have been premature to expect any announcement on this at the Autumn Statement.
Of relevance to the wider oil and gas sector, the previously trailed changes to restrict interest deductibility and relief for corporate losses were reconfirmed. These changes will not apply to North Sea exploration and production activities.
In addition, we expect the substantial shareholdings exemption, which exempts certain disposals by corporate shareholders from UK tax, to be simplified and some of the conditions relaxed. Further detail on these measures is expected when the draft Finance Bill is released for consultation in early December.
Alongside these more fundamental changes, there will be, as is now customary, a raft of technical refinements to existing legislation with a view to preventing opportunities for tax avoidance. The Chancellor also reiterated his commitment to the Business Tax Roadmap previously published by HM Treasury, and the message continues to be that Britain is open for business.
It is clear the Chancellor was focused on demonstrating a commitment to invest in the wider economy, in the first major announcement since the wave of uncertainty created by the Brexit vote.
As a consequence, the Autumn Statement might be regarded as unusual in recent history – a fiscal event with no significant announcements in relation to the North Sea fiscal regime.
However, that is unlikely to become the new norm. I expect the Chancellor will be keeping a close eye on the overall state of the industry in the coming months, and monitoring the effectiveness of recent reform in the North Sea regime.
Derek Leith, is an EY Partner and head of Oil and Gas Taxation