Announcing his first Budget as UK Chancellor of the Exchequer, Alistair Darling ...

Announcing his first Budget as UK Chancellor of the Exchequer, Alistair Darling unveiled changes that are an extension of corporation tax loss carry back, which will help delay decommissioning and extend the productive life of the North Sea. He announced that measures will be taken to address the inconsistencies regarding the application of petroleum revenue tax (PRT) to decommissioning liabilities and outlined a proposal to remove PRT non-payers from future exposure to the tax. Responding to the Budget statement, Oil & Gas UK - the representative organisation for the UK offshore oil and gas industry - welcomed the amendments regarding the treatment of decommissioning costs and moves to begin to rationalise the PRT regime, which it believes will ‘address a number of inconsistencies in the current regime and pave the way for more focused discussion on the overall tax burden’. However, Malcolm Webb, Oil & Gas UK’s Chief Executive, noted that although the changes ‘provide greater certainty and consistency for investors on the UK continental shelf (UKCS)’, they should only be regarded ‘as the start of the process of simplifying and easing the tax burden on UK oil and gas production and we look forward to the next stage of the government consultation producing further positive outcomes to that end’. Mike Tholen, Oil & Gas UK’s Economics Director, continued: ‘Although the changes announced today are a step in the right direction, Oil & Gas UK believes the future of the North Sea can only be properly secured by simplifying and reducing the overall tax burden to ensure investment can be sustained in this mature and challenging province. The £1bn drop in investment in 2007 highlights the competitive challenge the industry faces even in today’s price environment. The remaining discussions between the Treasury and industry must address the issue of the 50%-75% tax rate on new projects if the UK’s oil and gas industry is to continue its vital contribution to the nation’s energy supply, employment and tax revenues.’