LONDON (Reuters) - Chancellor George Osborne will cut taxes by 1 billion pounds over five years for energy companies pumping oil from the country’s North Sea fields, in a boost for an industry suffering low crude prices.
“We need to act now for the long term... backing this key Scottish industry and supporting jobs,” Osborne said in his annual budget statement on Wednesday.
The oil price has fallen around 70 percent since mid-2014, prompting producers to slash jobs in Scotland’s oil-rich northeast, sapping Scottish public revenues.
Shares in oil companies with fields in the North Sea including BP, Royal Dutch Shell and Cairn Energy rose between 2 and 3 percent, outperforming the FTSE100 index’s 0.7 percent rise.
The tax cuts are the latest in government measures in recent years to support the North Sea industry, one of the world’s most mature oil basins that has been in steady decline since reaching peak production in 1999.
Osborne said he would cut a supplementary tax charge on oil companies to 10 from 20 percent and scrap the 35 percent petroleum revenue tax, which had taxed profits for older oil and gas fields.
The tax changes, which will be backdated and effective from Jan. 1 this year, will save the industry around 1 billion pounds in the five financial years from 2016/2017 to 2020-2021.
A spokesman for Shell said the tax cuts were “a step in the right direction”.
“It is important that the tax regime reflects the maturity of the basin as well as the challenging commercial environment,” Mark Thomas, regional president for BP North Sea, said in a statement that welcomed the tax cuts.
But David Blumenthal, senior tax associate at Clyde & Co, said it may be a case of too little too late, “given the stagnating oil price and fears that we may yet see it fall further before any recovery.”
Last month North Sea industry group Oil and Gas UK said the oil price fall had accelerated the permanent shutdown of some fields, with 21 ceasing production in 2015, and as many as 80 could follow by the end of 2020.
The chancellor also announced the government would provide a total of 730 million pounds of support for renewable electricity through three contract auctions, with the first auction worth 290 million pounds.
A freeze on the country’s carbon tax at 18.00 pounds per tonne will also be extended until 2020-2021, while further details on renewable support and future changes to the carbon tax will be announced in the autumn statement, the budget statement said.
Additional reporting by Sarah Young, Ron Bousso and Elisabeth O'Leary, editing by Elaine Hardcastle and Susan Thomas