North Sea oil and gas companies struggling with the slump in oil prices will benefit from the UK Government's decision to cut taxes and introduce allowances to attract investments in the industry.

Chancellor of the Exchequer George Osborne commented in the annual budget speech that the supplementary tax charge on oil and gas companies will be reduced to 20% from 30%, backdating it to January, and petroleum revenue tax will also be cut to 35% from 50%.

The government will provide £20m for a seismic surveys programme in under-explored areas of the North Sea.

Osborne said: "While the falling oil price is good news for families across the country, it brings with it challenges for hundreds of thousands whose jobs depend on the North Sea.

"But it's clear to me that the fall in the oil price poses a pressing danger to the future of our North Sea industry - unless we take bold and immediate action."

The tax cuts and allowances package is said to offer annual savings of £1.3bn to the industry.

"The fall in the oil price poses a pressing danger to the future of our North Sea industry - unless we take bold and immediate action."

According to a review by the Office for Budget Responsibility, the measures could help increase North Sea oil production by 15% by the end of the decade, to at least 120 million barrels of oil equivalent of additional production.

The reforms could also attract over £4bn of additional investment to the industry.

Oil companies have been asking the government to simplify the tax regime, to tackle record-high costs and the drop in oil output from North Sea fields.

Companies are seeking support for investments worth around £25bn in the UK Continental Shelf, reported Reuters.

Image: George Osborne said that tax charge on oil and gas companies will be reduced to 20% from 30% with immediate effect. Photo: courtesy of Crown copyright.