The leading business network in the North-east of Scotland has urged the Chancellor to cut the tax rate for the oil and gas sector in his Autumn Statement.
In its submission to HM Treasury’s Oil & Gas Tax Review, Aberdeen & Grampian Chamber of Commerce says this may be the last chance for action before companies abandon wells, remove infrastructure and leave the UKCS
Its response to the review was developed with input from operators involved in exploration and production both in the UKSC and globally, and reflects its concern that the current fiscal regime does not take into account the maturity of the basin and the risks involved in investing in the area.
James Bream, research and policy director at the Chamber, said: “Operators tell us the UKCS fiscal regime is unpredictable, unnecessarily complex and simply too burdensome.
“In a mature basin, the industry must cut costs, innovate and increase collaboration, but it cannot work in isolation of Government and a consistent, fair and stable tax regime is crucial.
“Companies are not convinced they can get a fair return on their investment and in a global industry, it is very simple for them to move their capital elsewhere.”
The Chamber’s own biannual oil and gas survey showed the significant drop in confidence levels within the industry following the 2011 Budget tax changes (see attached chart).
In the Chancellor’s Autumn Statement, the Chamber is looking for:
* a commitment to an immediate reduction in the headline rate of taxation to 50 per cent, (from the current level of 62 percent) maintained for an extended period of time
* a simplification and rationalisation of allowances within an agreed timescale
* incentivised investment in existing fields
* encouragement for exploration investment by operators (especially new and small entrants) by allowing them to recover exploration costs during production phases or through other upfront incentives
* the avoidance of any changes which add complexity to the fiscal regime
The Chamber maintains that inaction will lead to a faster decline in the industry than necessary, premature decommissioning, a reduction in long-term revenue for the Treasury and would work against the recommendations in the Wood Review.
Mr Bream said: “Ageing infrastructure and global competition for labour have seen operating costs increase by a third since 2008. Exploration and appraisal drilling has halved in the same period.
“Low success rates make investment risky, smaller innovative operators may enter the basin but do not have the financial resources of the bigger players to draw on creating further challenges.
“The Government must be aware that decisions in the next few months will also have a major impact on the £35billion supply chain that exists in the UK.”
“We feel that this cut in the tax rate would create a new level of trust and would act as a clear statement of intent from the Government that they are committed to maximising economic recovery from the UKCS.”