Campaign group Global Witness has warned that a Treasury tax break designed encourage the sale of old oil and gas assets could add more than £3 billion to the UK’s decommissioning bill.
The organisation has advised the government to postpone the implementation of Transferable Tax History (TTH) legislation, due to come into effect in November.
TTH will let the buyers of UK oil fields inherit part of the seller’s tax history, which can be used to offset decommissioning costs.
Global Witness said TTH was designed to “foster a level playing field between those situations where there is an asset sale versus situations where current owners retain their interests through to decommissioning”.
But the campaign group said TTH was “fiscally dangerous and inadequately justified”, adding: “As a result, it should be immediately and indefinitely postponed, pending a full assessment of the true potential cost of the policy.”
The report, written by former Chevron executive Tom Mitro, says: “Before considering impacts of TTH the maximum decommissioning tax refund exposure to the UK Government in the future has been estimated by HMRC to be £24 billion.
“But, extrapolating too far into the future can be somewhat misleading. Technology, costs, markets and tax rules have been shown in the past to change dramatically over a period of even 10 years.
“Additionally, 10 years also reflects a rough average period of time from a typical date of acquisition until the date of decommissioning. Consequently, this analysis has focused only on the next 10 years, over which total decommissioning costs have been estimated to be £18 billion.”
Mr Mitro added: “The overall impact on the Exchequer of TTH could range from virtually zero to a roughly £3+ billion reduction in tax receipts over the next 10 years depending on oil prices and number of asset sales and decommissioning.
“In any event, TTH will increase the £24 billion ultimate estimated cost over time to the Exchequer that was forecast by the HMRC in June 2018.”