The announcement by the U.K. Chancellor of the Exchequer Philip Hammond that changes will be made to the tax regime for assets on the U.K. Continental Shelf was called for by the oil and gas industry – so needless to say it will be welcomed, but what is the bigger story?
In his Budget, Mr. Hammond revealed that tax history for oil and gas installations would be made transferrable from November next year. This will mean that the current owners of mature assets in U.K. waters who are looking to sell will be able to transfer some of their corporate tax history to would-be buyers.
The move is designed to attract greater investment into the basin by encouraging new players who are hopefully better positioned than the current incumbents to maximise production from late life assets. It’s not a one-way reward though, as this would, in turn, generate extra tax revenue for the Treasury.
It will also significantly reduce the cost of decommissioning these assets for the new owners and thereby create a greater incentive for investment.
In advance of Mr. Hammond’s budget speech, industry body Oil & Gas UK estimated the transfer of tax histories from sellers to buyers could save the Treasury an average of £10 million per asset in deferred tax relief.
Today’s announcement is the latest example to reinforce the view that the industry increasingly appears to have the ear of Whitehall. From the disastrous days of former chancellor George Osborne’s North Sea tax grab in 2011, we have seen, step by step, a reduction or removal of taxes as the industry has sought increasing government support in its battle to offset the lower oil price.
It cannot be sheer luck that the improvement in relations between the two sides has coincided with the U.K.’s Maximising Economic Recovery strategy and the subsequent creation of regulatory body the Oil and Gas Authority (OGA). And while the OGA’s role is much greater than merely acting as a go-between for the industry and the Treasury, bringing together the wants of one side and the needs of the other is creating a better degree of dialogue and understanding.
Long may it continue!