UK fast-tracks consultation on o&g investment allowance

The Prime Minister David Cameron reinforced the government’s support for the UK’s oil and gas industry at a meeting with industry representatives, hosted jointly with HM Treasury ministers Danny Alexander and Priti Patel.

Chief Secretary to the Treasury Danny Alexander and the Exchequer Secretary to the Treasury Priti Patel announced the launch of an investment allowance consultation yesterday (January 22, 2015). This consultation has been fast-tracked at the request of industry.

The allowance, which was first announced in Autumn Statement, is a single, basin-wide capital expenditure linked investment allowance, designed to reward investment at all stages in the industry lifecycle by reducing the effective tax rate for companies investing in the future of the UK Continental Shelf. It should hugely simplify the existing regime of field allowances and provide certainty for companies to help ensure they maximise the remaining opportunities in the North Sea.

According to the Treasury, the launch of this consultation demonstrates the government’s commitment to the industry and sends a clear signal that the UK is open for business. The new allowance is likely to reduce the effective take rate to 45-50% for companies investing in the future of the North Sea.

The consultation will seek views from industry on how the allowance can best support investment in North Sea oil and gas projects.

Danny Alexander, Chief Secretary to the Treasury, said: “These are difficult times for Scotland’s oil and gas industry, which is why I announced an ambitious package to support this hugely valuable sector at last month’s Autumn Statement. And it’s why I am meeting industry representatives here today, to see how we can support them further, and announcing today that we are fast-tracking consultation on an investment allowance, which industry has told us will incentivise investment opportunities in new and existing fields across the North Sea. We will take action on oil and gas to help the industry at Budget.

“Oil prices are inherently volatile, that is why it is important that we take a long term view on the issue: supporting the industry through encouraging investment and protecting the UK’s public finances through a sustainable tax regime, while ensuring that the 375,000 livelihoods that depend on the UK’s oil industry are protected for many years to come.

“The industry – and its workers – have ridden many storms, and with the continued support of the government and the Oil and Gas Authority we are confident that it will emerge from this one with renewed vigour. This kind of support is only possible because we can draw on the combined strength and resources of the United Kingdom.”

Priti Patel, Exchequer Secretary to the Treasury, said:

“Today the government is once again demonstrating its long term commitment to supporting this important sector that provides jobs and economic benefits across the UK.

“At Autumn Statement, the government recognised the need to lower the tax burden on the North Sea, demonstrated in the cut in supplementary charge which came into effect on 1 January.

“Today’s fast-tracked consultation launch shows that we are committed to bringing these reforms into place as a matter of priority. We expect to build on this action at Budget and will take a final decision on the investment allowance then.”

Oil & Gas UK’s reaction

Oil & Gas UK welcomed the Government’s announcement of a further consultation into a basin-wide Investment Allowance as  a positive signal to investors, but urged its delivery to be ‘fast-tracked’ and to take effect from Budget 2015 if the UK Continental Shelf (UKCS) is to regain any attraction for investment in the current climate.

Speaking in Edinburgh yesterday, Oil & Gas UK chief executive, Malcolm Webb said:

“We are encouraged to note that work on the Investment Allowance announced in the Autumn Statement is progressing. However a reduction in the headline rate of tax is also essential to really improve the international competitiveness of the UKCS.”

“Given the maturity of this basin, I’m afraid there will be no second chances.”

Oil & Gas UK notes that the allowance recognises that investment in the UKCS delivers skilled jobs, energy security and ultimately provides production revenues back to the Exchequer. Furthermore, Oil & Gas UK says it will be seeking further clarification on a number of points, including the rate of the Investment Allowance which must be competitive.

Malcolm Webb concluded: “We now need a much lower, simpler and more stable tax regime that will allow the investor to shift their focus away from fiscal risk towards investment opportunities. We see today’s announcement as a first step.”


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