Oil companies have welcomed Chancellor George Osborne’s partial climb-down on the North Sea windfall tax hike.
The Treasury announced yesterday that “ring-fence expenditure supplement” (RFES) would be raised from 6 per cent to 10 per cent. The modification allows firms to use losses accrued during field exploration and development for up to six years to offset again profits made from production.
Norway’s Statoil, which put £6bn of exploration projects on hold following the announcement of the Supplementary Tax in the March budget, has already announced that it will resume work on its Mariner field to the south east of the Shetland Islands.
The £2bn windfall tax has come in for heavy criticism from the oil and gas industry, which has criticised the UK Government for failing to establish a stable tax regime and of discouraging investment on exploration and production in marginal fields.
Oil & Gas UK, an industry trade body, described the move as “constructive”. “This is a first step in the right direction. We made it clear after the Budget that government actions and not just words would be needed to begin to rebuild trust,” said Chief Executive Malcolm Webb.
The announcement was also welcomed by the markets, which saw shares in exploration firms rise considerably, a sign that investors had regained confidence in the North Sea region.
However, the concession falls well short of the three point plan aimed at establishing a stable and rewarding tax regime presented to the Treasury by First Minister Alex Salmond recently. It remains to be seen whether the change will do enough to reassure the oil and gas industry that the North Sea will continue to be a profitable region.
Labour said the move was clearly an attempt to undo some of the damage caused by the announcement of the Supplementary Tax back in March. The Shadow Treasury Minister Kerry McCarthy said: “George Osborne completely failed to think through his botched tax raid on the North Sea, which has led to companies reconsidering their future in Britain.”