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25 July 2012

New tax support for gas in the North Sea

The Chancellor of the Exchequer has today announced a new tax relief to support gas investment in the UK Continental Shelf.

A £500m field allowance for large shallow-water gas fields will be established with the aim of securing future investment in North Sea gas, creating jobs and bolstering the UK’s energy security.

The Government has pledged to publish a gas strategy later in the year with the aim of giving certainty to investors on the UK’s long-term commitment to gas as a vital part of the transition towards low-carbon energy generation.

The Chancellor said:

“Gas is the single biggest source of energy in the UK. Today the government is signalling its long-term commitment to the role it can play in delivering a stable, secure and lower-carbon energy mix. At the Budget, we announced an ambitious package of support to stimulate billions of investment in oil and gas production in the North Sea. Today’s news is a further sign of the Government’s determination to get the most out of a huge national asset.”

The Energy Secretary has today also announced the Government’s decision on the levels of financial support that will be available through the Renewables Obligation (RO) for large-scale renewable electricity generators from 2013-17 (2014-17 for offshore wind), and confirmed the ongoing importance of gas as part of the UK’s energy mix.

Taken together, these announcements are intended to give investors the long-term certainty needed to make decisions on investment in both gas and renewable power.

Notes for editors

1. At Budget 2011, the Chancellor said that he would consider the case for introducing a new category of field allowance for marginal gas fields. Today’s allowance will apply to new large shallow-water gas fields, defined as fields:

The maximum allowance will be available to fields with a central estimate of gas reserves between 10 billion cubic metres (bcm) and 20 bcm, tapering to no allowance at 25 bcm.

Two or more fields qualifying on the same day will be considered together for the purpose of meeting the gas reserves criterion, with the total allowance to be allocated between them in proportion to their respective central estimates of gas reserves.

2. The allowance will protect £500m of income from qualifying fields from the 32 per cent Supplementary Charge (SC) tax rate. These fields will still pay 30 per cent Ring Fence Corporation Tax (RFCT) on all income from the field, in addition to SC on all income not protected by the field allowance.

3. This measure is expected to cost approximately £20 million per annum. The final costing will be subject to scrutiny by the Office for Budget Responsibility, and will be set out at Autumn Statement 2012.

4. As the Chancellor announced at Budget 2012, the Government will continue to work with the oil and gas industry to consider how a potential brown field allowance could be structured to unlock investment, while protecting Exchequer revenues. It is also consulting on a contractual approach to provide greater certainty on decommissioning tax relief.

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