As the dust settles on the first Autumn Budget for over two decades, one might reasonably conclude it was, outside of the oil and gas sector, a bit of an anti-climax.
In the run up to the Budget, there was speculation as to whether the Chancellor would make more of a fist of commencing the reform of employee versus self-employment taxation, setting the country up to deal with the move from conventional employment to the gig economy. In the event all we got was a deferral of some reform of National Insurance Contributions and a promise of more consultation around personal service companies. Perhaps we shouldn’t be surprised by the delay in tackling the necessary reform as the general law on what constitutes ‘employment’ is currently being scrutinised in a court case, as the courts wrestle with changing working relationships.
Other Budget speculation floundered in similar fashion: no attempt to stimulate capital investment through a reintroduction of tax depreciation for industrial buildings; no deferral of the reduction in the corporation tax rate; no changes to the VAT threshold; no changes to pensions and nothing of substance on the heralded ‘inter-generational fairness’. Even the tweaking to SDLT rates and bands to stimulate the housing market didn’t materialise save in the guise of helping first-time buyers.
In essence the two main tax measures which are not sector specific were the welcome boost to the R&D tax credit regime by increasing the rate from 11% to 12%, and the slightly surprising revenue generating measure of the freezing of indexation on disposals of assets by companies from 2018.
Therefore, in the round, the oil and gas sector is the stand out winner in terms of targeted government support. That evidences the fact HM Treasury are fully aware of the costs to the Exchequer of decommissioning UKCS assets, the wider economic benefits of maximising economic recovery and the macroeconomic benefits of maintaining the oil and gas supply chain. Whilst the first of these may weigh most heavily on HMT’s North Sea tax policy decisions it is arguably the last of these that is of most significance to the North East of Scotland. Eventually the economically recoverable UK hydrocarbon reserves will be fully depleted and decommissioning will have taken place but the long-term presence of a dynamic, high tech, internationalised and diversified supply chain will be a lasting benefit to the North East and the country as a whole.
There is only so much that fiscal policy can achieve. The reductions in tax rate for the oil and gas sector, the introduction of investment allowance and now the promise of transferable tax history reflects a desire by two successive governments to support the sector and the supply chain. The City and Shire deal has also provided investment to create the Oil & Gas Technology Centre and support for an element of diversification in the local economy. It is now up to those of us in the North East to make the most of these tax policy changes, and the investment from Westminster and Holyrood, to build a strong, resilient and highly productive economy.
Derek Leith is head of oil and gas tax at EY