by Andreas Exarheas, Assistant European Editor
UK Chancellor of the Exchequer George Osborne announced significant tax cuts in his Budget speech March 16 to help the oil and gas sector, which he described as “one of the most important and valued industries” in the country.
Osborne’s latest measures, which follow the introduction of a new tax allowance intended to stimulate investment across the industry back in March 2015, include halving the supplementary charge on oil and gas to 10 percent and the effective scrapping of petroleum revenue tax. The changes will be backdated to Jan. 1 and will support jobs “right across Britain,” the chancellor said.
The oil and gas industry’s immediate reaction to Osborne’s tax changes has been somewhat mixed, with a significant number of organizations condemning the chancellor for not doing enough. As of April 1, Rigzone’s opinion poll on the efficacy of the cuts, which asked visitors if the changes were sufficient, revealed that 36 percent of respondents answered “no.” Twenty-nine percent of those who answered the poll believed Osborne’s cuts were sufficient and 36 percent were undecided.
One of the more outspoken critics of Osborne’s plans was Scottish National Party spokesperson for Energy and Climate Change Callum McCaig MP (Member of Parliament). McCaig said in an SNP release that “far more could have been done” for the oil and gas industry and accused the chancellor of sitting back and resting “on his laurels.” The MP claimed that Osborne lacked the “vision” to bring forward a “long-term strategy for the North Sea oil and gas industry” and said that he had “failed once again to introduce measures that would encourage exploration.” McCaig also said that the chancellor had failed “yet again” to bring forward any proposals on non-fiscal support, such as loan guarantees “which would help sustain investment in the sector and help companies to protect jobs.”
Another critic of Osborne’s changes was energy recruitment firm Airswift’s CEO Peter Searle. Although Searle admitted in a company statement that the tax cuts would go “some way” towards supporting the North Sea oil and gas sector, the CEO said that there was still a “major risk that the industry will continue to lose talent, skills and expertise to other sectors.” He remained unconvinced on whether the cuts would protect or create jobs for the North Sea.
Also, law firm Ashurst’s Energy Partner Michael Burns said in an organization release that the government’s action “may be a case of too little, too late” and the firm’s Tax Partner Nicholas Gardner remained skeptical on whether the latest cuts “will be enough.”
IO Oil & Gas Consulting’s Director of Field Development Chris Freeman expressed his concerns over Osborne’s tax cuts too. In a company statement, Freeman took a swipe at the changes to the petroleum revenue tax saying this would only benefit the industry’s larger oil companies, and he would have rather seen the supplementary tax be “fully reduced to zero.”
Although a large portion of the industry contested Osborne’s changes, there were a few companies that saw the cuts as wholly positive. Some of the biggest supporters of the changes were UK offshore oil and gas industry body Oil & Gas UK, the Aberdeen & Grampian Chamber of Commerce and KPMG Aberdeen. The chief executive of the former association, Deirdre Michie, welcomed the measures, saying in an organization statement that they would boost the sector’s “competitiveness” and help to restore “investor confidence.” The AGCC’s Research & Policy Director, James Bream, also praised the changes, stating in an AGCC release that they would help to “build confidence” in the sector, and KPMG Aberdeen’s Senior Tax Partner Martin Findlay said in a KPMG statement that the cuts “will help to create a more attractive fiscal framework for this strategically significant industry”.
Oil and gas recruitment specialist Fircroft’s CEO Johnathan Johnson was another supporter of the cuts, saying in a company release that they will “help protect one of the jewels in the UK economy. Johnson saw the “highly encouraging” changes as a “long-term move to ensure the security of jobs,” going against those in the industry that claim the cuts won’t aid employment in the sector.
The industry seems split on whether or not Osborne has done enough to help the UK oil and gas industry in his latest Budget speech. While a number of oil and gas organizations have praised Osborne’s tax cuts and suggested that they are sufficient, a huge section of the sector, including the majority of Rigzone readers, believes that the changes did not go far enough. If the next 12 months reveals that the latter group was correct, Osborne could find himself having to do a lot more for the oil and gas industry in his 2017 budget speech.