George Osborne, the UK Chancellor of Exchequer, today presented the Autumn Statement to the Parliament where he promised that the government will shortly set out major reforms to the oil and gas fiscal regime, to make sure that the UK Continental Shelf continues to attract investments.
In its statement Chancellor Osborne has said that the government will implement an immediate 2% reduction in the rate of the Supplementary Charge, from 32% to 30%, taking effect on 1 January 2015, and will aim to reduce the rate further in an affordable way, to encourage additional investment and drive higher production, “sending a strong signal that the UKCS is open for business.”
The statement further read that with the equivalent of between 11 and 21 billion barrels of oil still to be exploited, the UKCS can continue to provide considerable economic benefits to the UK through increased energy security, a stronger balance of payments position, high-value jobs and further development of the UK’s strong, export-focussed supply chain.
“Together these measures are expected to incentivise extra investment and lead to additional production on top of the approximately 9 billion barrels of oil equivalent the UK currently expects to produce…”
Chancellor Osborne also added that the UK will extend the ring fence expenditure supplement to 10 years for offshore oil and gas activities to support investment by companies whose expenditure exceeds their production income, aligning the treatment of offshore and onshore projects.
In addition, the Autumn Statement further reveasl, building on the success of field allowances, the government is introducing with immediate effect a new cluster area allowance to support investment in the development of technically challenging high pressure, high temperature projects and encourage exploration and appraisal within ‘cluster’ areas. This is expected to lead to the development of new fields, which will result in billions of pounds of additional investment, thousands of new jobs being created and substantial benefits to the UK supply chain, the statement reads.
Together these measures are expected to incentivise extra investment and lead to additional production on top of the approximately 9 billion barrels of oil equivalent the UK currently expects to produce, as well as sustaining oil and gas tax receipts for the longer term, the Autumn Statement read.
This is what Chancellor Osborne had to say on the subject of oil before the parliament.
“Mr Speaker, the fall in the global oil price has meant a welcome boost to much of the British economy and to families. There is record investment this year in the North Sea, but the lower oil price clearly presents a challenge to this vital industry.
“My RHF the Chief Secretary will set out our full proposals in Aberdeen tomorrow. But I can tell the House today that we will go ahead with an immediate reduction in the rate of the Supplementary Charge from 32% to 30%. We will expand the ring fenced expenditure supplement from 6 to 10 years.”
“There is record investment this year in the North Sea, but the lower oil price clearly presents a challenge to this vital industry.”
“And we are introducing with immediate effect a new cluster area allowance.”
“This demonstrates our commitment to the tens of thousands of jobs that depend on this great British industry. But despite falling fuel prices let me make this clear: we’ve cut fuel duty and we will keep it frozen.
“With my HF for Harlow sitting right behind me, I wouldn’t dare do anything else. And just as we demand that falls in oil prices should be passed on to people at the pumps, other fuel price surcharges should also come down. “
“We’re going to require airlines to list the charges separately from taxes on tickets. But I also want to reduce the cost of those tickets for families directly. From the 1st May next year, Air Passenger Duty for children under 12 will be abolished. And I’ll go further than he asked. From the following year, we’ll get rid ofAPD for children under 16 altogether.”