Budget promises tax review of North Sea oil and gas

8 Mar 17

The spring Budget promised a review of taxation on North Sea assets aimed at maximising exploitation of remaining oil reserves, and on the extra £350m of “Barnett consequentials” coming Scotland’s way because of new spending on English measures.

Though Philip Hammond’s speech made several positive references to the importance of the Union, relatively few of the chancellor’s announcements have any direct relevance in Scotland, where areas like health, social care, local taxation and education are all devolved to Holyrood.

The extra funds coming to Scotland arise because of announcements on economic development, health and education in England. Some £260m will be added to Holyrood’s resource budget over the next four years, and £90m to capital spending.

Hammond has agreed in principle to tax incentives to boost activity in a struggling oil and gas sector, and today promised both to set up a panel of experts and to publish a discussion paper ”in due course”.  Industry body Oil & Gas UK and Scottish finance secretary Derek Mackay have both appealed in recent days for more fiscal support to help the industry cope with a low world oil price.

Stewart Hosie, Scottish National Party economics spokesman at Westminster, said he had hoped to welcome a package of concrete measures to help the sector. “Instead we have been offered an options paper, and one of my sharp-eyed assistants has told me that that is exactly the same offer that was made in 2016,” he said.

Mike Tholen, upstream policy director for Oil & Gas UK, said it was good news that the Treasury recognised the sector’s problems, but said he hoped they would “crack on” with bringing forward measures to make it more fiscally attractive for smaller firms to take on late-life reserves. “The longer we wait, the more we may hold deals up,” he said.

In contrast, the Greens’ Patrick Harvie, said: “By describing maximum exploitation of North Sea oil as ‘essential’, the Tory chancellor confirms the Tories’ Trump-style denial of climate change reality. We should be investing in decommissioning, renewables and the low-carbon infrastructure that creates lasting, high quality jobs rather than pouring money into the bottomless pit that is nuclear.”

Meanwhile, Murdo Fraser, the Scottish Conservatives economics spokesman, said that the extra £350m in Barnett consequentials meant there was no need for the Scottish Government to increase Scotland’s tax burden. “The SNP’s double dose of local government cuts and income tax changes to penalise middle-earners is now utterly without justification,” Fraser said.

Ian Murray, Scotland’s sole Labour MP, said Scottish growth continued to lag behind that of the UK. The additional Barnett Formula funds should be channelled into improving economic performance and productivity, he said, but that also required removal of the “uncertainty” created by talk of a further independence referendum.

Alistair Carmichael, the sole Scottish Liberal Democrat MP, said the chancellor had had “absolutely nothing to say” to alleviate the Brexit uncertainties that were unsettling key sectors of the Scottish economy. The Conservatives, he said, were  “out of touch, and out of ideas.”

  • Keith Aitken
    Keith Aitken

    covers Scottish affairs for Public Finance from Edinburgh. He was formerly economics editor and chief leader writer on The Scotsman and now has a busy freelance career as a writer, broadcaster and event chair.

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