Budget 2016: further tax cuts for offshore oil and gas sector

The Budget has once again provided support for the UK’s beleaguered offshore oil and gas sector, with cuts to the supplementary charge on oil and gas producers.

In his second Budget speech as chancellor of a fully Conservative government, George Osborne confirmed the Treasury would halve the supplementary tax charge on North Sea profits from 20 per cent to 10 per cent, back-dating this to the start of the year.

He also said he would “effectively abolish” Petroleum Revenue Tax, after it was cut last year from 50 per cent to 35 per cent.

In a slight at the Scottish National Party, he said this would not have been possible without the “broad shoulders of the United Kingdom”, adding that if Scotland had “broken away” it would have “struggled from the start” under the burden of the highest budget deficit in the Western world.

In last year’s Budget, Osborne announced similar cuts to the supplementary tax charge on North Sea profits from 30 per cent to 20 per cent, also to be back-dated to the start of the year.

However, over the last year, he said, the industry has suffered in the face of ever-declining global wholesale oil and gas prices, which are expected to continue falling this year.

Responding to the Budget announcement energy partner at Bond Dickinson, Richard Cockburn, said: “The tax reductions announced today by the Chancellor will help significantly to improve the economics of North Sea projects. The effective abolition of Petroleum Revenue Tax has long been called for by the industry and will be welcomed widely.

“The reduction of the supplementary charge may allow operators to take a second look at projects which, until now, were looking uneconomic. Oil and Gas UK has been predicting investment approvals of less than £1 billion this year relative to a typical annual figure of £8 billion over the last five years so the Chancellor’s reform has come at an opportune time.”