LONDON – Britain’s government has broadened qualifying criteria for the Investment Allowance throughout the UK continental shelf (UKCS) that Chancellor George Osborne announced in his March Budget.
Osborne revealed the development in his Summer Budget yesterday. The new terms include certain non-capital operating expenditure and long-term leasing of production units.
Additionally he confirmed a phased 2% cut in corporation tax for non-ring fenced trade over the next five years.
These measures, due to take effect in the fall, should cost the Treasury $7.7 million/yr.
Oil & Gas UK CEO Deirdre Michie said: “With continued signs that investment in the UKCS is falling rapidly, it is vital the scope of the Investment Allowance…encourages all forms of productive investment if it is to provide the strongest engine for growth…
“In addition, the cut in corporation tax…will support companies throughout the sector’s supply chain and help its competitiveness.”
Michie said the UK offshore industry was taking major steps to improve the efficiency and reduce the cost of operations. “Lifting costs are anticipated to fall as a result over the next 12 months. The pace of work behind the scenes must now be stepped up to continue the implementation of fiscal reform the industry urgently needs to support its own activities to improve efficiency.”
She cautioned: “Whilst previous fiscal measures including the introduction of the Investment Allowance and reductions in the headline tax rates have been helpful, the agreed program of fiscal reform must also continue to respond to the prevailing business environment.
“HM Treasury had already proposed in the March Budget to consult on further measures to support exploration, improve access to decommissioning tax relief and reform the fiscal treatment of infrastructure and with the Summer Budget now behind us, it is imperative HM Treasury now commence these consultations to ensure the fiscal regime drives investment through the downturn.”
Michie pointed out that exploration on the UKCS remains depressed, with only seven wells spudded so far this year, “at a time when industry should be aiming to drill upwards of 30 wells a year to reinvigorate the basin. That harsh fact underlines why we need effective regulatory, licensing, and fiscal measures in place by Budget 2016 at the latest.”