George Osborne introduces budget measures to help North Sea industry which is forecast to make losses until at least 2021

This article is more than 4 years old

This article is more than 4 years old

The North Sea oil industry, once a huge moneyspinner for the Treasury, is set to become a £1bn burden for the taxpayer next year as the plunging crude price hits revenues.



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New forecasts from the Office of Budget Responsibility (OBR) show oil companies that were providing £11bn of tax revenues as recently as 2012 will contribute zero in 2015-16, moving to minus £1.1bn in 2016-17 - a loss that will be repeated annually until at least 2021.

“Payments of offshore corporation tax and petroleum revenue tax (PRT) will be lower and are likely to be dwarfed by repayments relating to [platform] decommissioning costs,” said the OBR, adding that the burden would be made worse by oil companies posting losses.

The analysis, which presumes oil prices will continue to remain low at around $44 per barrel in coming years, took account of further tax breaks in the budget

George Osborne bowed to pressure from the hard-pressed North Sea industry by cutting taxes in a £1bn move which delighted oil firms but infuriated climate change campaigners.

The chancellor halved a supplementary charge levied on offshore fields and completely abolished a 30% petroleum revenue tax.

“The oil and gas sector employs hundreds of thousands of people in Scotland and around our country,” said Osborne. “In my budget a year ago, I made major reductions in taxes, but the oil price has continued to fall so we need to act now for the long term.”

Oil & Gas UK, the lobby group, said the moves were “a jolly good shove in the right direction” at a time when the industry was facing a fight for survival as the crude price hovers around $40 a barrel.

“There were very few exploration wells drilled in January and February,” said Mike Tholen, economics director at Oil & Gas UK. “This [tax break] is part of the answer but we must continue to reduce our costs and hope that the oil price recovers.”

Environmentalists said the extra help for oil companies jarred with a cut in state subsidies for renewable energy since the general election.

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Nina Skorupska, the chief executive of the Renewable Energy Association, said the government was protecting the most polluting industries despite committing to reducing global warming in last year’s Paris climate talks.

“If the government are serious about their national and international commitments, they need to back up the empty rhetoric with real actions,” he said.

Greenpeace said clean energy could power the UK in the future if it was given a “sliver” of the financial and political backing that was received by the nuclear and fossil fuel industries.

“Rather than hoping to extract more North Sea oil and gas, the government should be looking at a transition plan for the communities impacted by a declining industry including expanding offshore wind,” said Doug Parr, the organisation’s policy director.

But Osborne said oil was a key industry for Britain that needed help during a difficult period.

He also used the budget speech to deliver a clear political message to Scotland. It was only possible to provide these concessions “because of the broad shoulders of the UK”, he argued – a clear suggestion that the industry would have been in a bigger crisis had Scotland, with its much smaller oil-based economy, voted for independence.

A Treasury briefing note said the North Sea had paid a total of £330bn in production taxes to date, supported 375,000 jobs and boosted the UK’s balance of payments to the tune of £25bn every year.

But some oil experts said Osborne had not done nearly enough, especially after having previously raised taxes on the industry.



Energy analysts at investment bank Barclays said: “We do not believe the tax changes materially alter the outlook for the North Sea, or indeed asset valuations amongst small and mid cap [medium-size] exploration and production companies.”

David Blumenthal, senior tax associate at law firm Clyde & Co, said: “While tax cuts for the oil and gas industry are welcome, given the stagnating oil price and fears that we may yet see it fall further before any recovery, there is a sense that whatever the chancellor does now could be a case of ‘too little, too late’ – especially in view of the blows he dealt the industry at the beginning of his chancellorship.”

Osborne used a budget five years ago to raise the supplementary charge on oilfields from 20% to 32%. He was roundly criticised by the Aberdeen industry which warned it could lead to a big fall in investment.

Exploration levels did fall and then were made worse when the price of Brent blend oil started to fall from a high of $115 per barrel in June 2014 to less than $30. It has since recovered slightly to $40.

In the run-up to the budget, Oil & Gas UK said about 14bn barrels of an estimated 20bn barrels of oil lying beneath the UK continental shelf in the North Sea would not be extracted unless conditions for the industry improved.