UK Chancellor Announces More Tax Breaks for Oil, Gas Industry

UK Chancellor Announces More Tax Breaks for Oil, Gas Industry
UK Chancellor of the Exchequer George Osborne announces further tax breaks for the offshore oil and gas industry in his Autumn Statement.

UK Chancellor of the Exchequer George Osborne said Wednesday that improvements in tax supplements on oil and gas production and the introduction of a new Cluster Area Allowance for offshore fields demonstrates a commitment from the UK government to the tens of thousands of jobs that the oil and gas industry supports.

The measures come after a number of voices from the UK oil and gas industry called for a major tax reform of the sector in late November.

Delivering his Autumn Statement in the House of Commons, Osborne acknowledged that the lower oil price represented a challenge to the industry before stating:

"I can tell the House today that we will we go ahead with an immediate reduction in the rate of the Supplementary Charge from 32 percent to 30 percent, we will expand the Ring-Fenced Expenditure Supplement from six to 10 years and we're introducing with immediate effect a New Cluster Area Allowance. And this demonstrates our commitment to the tens of thousands of jobs that depend on this great British industry."

In the UK the supplementary corporation tax charge is paid on oil and gas profits that have been ring-fenced so that they cannot be reduced by any losses or other tax reliefs from other business activities.

Osborne added that Chief Secretary to the Treasury Danny Alexander would set out the government's full proposals in Aberdeen on Thursday.

Commenting on the Autumn Statement, consultancy firm EY said the measures were of greater political significance than economic benefit.

Derek Leith, who heads EY's UK oil and gas taxation practice, said:

"While modest, the reduction in the supplementary charge may prove to be a turning point for oil and gas exploration and production in the North Sea. It's a clear indication that the government has listened to representations made by industry and is willing to lessen the burden on companies operating in the basin. 

"It's a welcome step, as positive changes are required to encourage new investment in both exploration and extraction. But, following three successive increases in taxation, it falls short of the bold reforms we called for prior to the Autumn Statement and can be considered to be of greater political significance than economic benefit.

"The Chief Secretary to the Treasury may herald further changes in the tax treatment of exploration and decommissioning when he unveils the findings of HM Treasury's review of the oil and gas fiscal regime in Aberdeen tomorrow. However, it's suspected that he's more likely to announce a further program of information gathering and discussion. 

"Crucially, we would hope to get more of a sense of the steps the government is prepared to take to create a simpler, more transparent and more sustainable fiscal regime in the UK Continental Shelf."

A former engineer, Jon is an award-winning editor who has covered the technology, engineering and energy sectors since the mid-1990s. Email Jon at


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