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EY joins calls for Osborne to cut oil industry taxes

Chancellor George Osborne is expected to make further concessions on tax relief next week to help maintain investment in the North Sea oil industry.

The Treasury is already committed to publishing the results of a fiscal review to coincide with the Autumn Statement and the industry is hoping it will include measures that will expand the lifespan of existing operations and encourage more exploration and production.

Oil analysts at professional services firm EY (formerly Ernst & Young) have today added their voice to Aberdeen Chamber of Commerce’s call for further tax concessions and have urged the Chancellor to cut the rate of petroleum revenue tax to 0%.

Derek Leith, EY’s head of oil and gas taxation and Aberdeen office managing partner, says this would stimulate further investment in fields subject to PRT. He says the Chancellor should initiate changes to the capital allowances regime to encourage infrastructure transactions

The Treasury’s review of the oil and gas fiscal regime which concluded in October and industry followers are expecting it to build on encouraging developments in recent months.

Mr Leith said: “A recent speech delivered to the Energy Institute by Chief Secretary to the Treasury Danny Alexander indicated that the government has listened carefully to representations made by industry and is prepared to lessen the tax burden on companies operating in the North Sea in a bid to maximise the recovery of resources.

“There was also an acknowledgment that the issues are complex and that further consultation will be necessary. While we realise that wholesale alterations to the current regime cannot be implemented instantaneously, we believe that an immediate reduction in the tax rate is necessary.

“Virtually all new fields granted development consent since 2011 have benefitted from some form of field allowance. This strongly suggests that the current headline rate is too high for the maturity of the basin.”

EY is also recommending the introduction of a single field allowance with basin-wide applicability, based on a percentage of all capital expenditure incurred, to simplify the numerous existing field allowances.

“Furthermore, we also suggest that the government considers ,” Mr Leith added.

“At the very least, we hope that the recommendations made to the review will form the basis of a roadmap setting out the future direction of the administration of the basin,” he said.

Regarding the fall in the oil price, he said: “The Chancellor stated in 2011 that he would re-evaluate the rules on North Sea tax if the price of oil ever fell to $75 per barrel. Current prices are only marginally higher against a much higher cost base, meaning action has to be taken to address decreasing levels of investment, activity and, consequently, tax revenues.”

The latest Aberdeen Chamber Oil and Gas Survey found that for the first time since 2008 more operators and contractors are pessimistic about their UK Continental Shelf (UKCS) activity than are optimistic.


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