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UK Preparing New Tax Regime With Oil And Gas Firms

by Amanda Banks,, London

17 July 2014

The UK Treasury has opened a consultation with the oil and gas industry on the long-term future of the North Sea tax regime, as the cost of UK Continental Shelf exploration and extraction projects has risen.

The Government says that despite record levels of investment, the UK is facing more intense competition from other countries, and the Office for Budget Responsibility has highlighted that tax revenue from North Sea oil will decline in the future. The Government wants to explore how to encourage investment and maximize the value of the country's oil and gas resources, while ensuring the nation continues to receive a fair share of proceeds.

The announcement marks the start of 12 weeks of discussion with the industry and other stakeholders. Chief Secretary to the Treasury Danny Alexander said that the UK's "broad and diverse" tax base means that the Government is able to support the industry in various ways, such as offering certainty over decommissioning tax relief. Decommissioning relief deeds are currently worth over GBP20bn (USD34bn) for the industry.

Nicky Morgan, the Financial Secretary to the Treasury, added that tax changes introduced by the Government have already led to billions of pounds of new investment. In particular, "field allowances" to encourage investment in North Sea fields that are smaller or harder to access secured GBP7bn of new investment last year.

The Government has further argued that an independent Scotland would not be able to offer the same level of support to the industry. It said that the cost to Scotland of meeting the UK Government's decommissioning relief commitment would be more than ten times higher per capita than if Scotland were to remain part of the UK.

There are thought to be between 11bn to 21bn barrels of oil remaining in the UK Continental Shelf that are economically viable to recover.

TAGS: tax | investment | corporation tax | United Kingdom | oil and gas | ministry of finance | tax reform | Scotland

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