‘Osborne must act now to protect North Sea skills, technology and capital’, say lawyers

Measures including a reduction of corporation tax to bring the North Sea in line with wider UK industry have been mooted to ease the pressure on businesses grappling with a continued low oil price.

Pinsent Masons says Osborne is under mounting pressure to unveil fiscal measures after UK government’s move to cut Petroleum Revenue Tax (PRT) to 35 per cent, reduce the supplementary charge to 20% and the launch of a £20 million seismic survey fund during last year’s Budget, were seen by many as inadequate in addressing fiscal pressure on North Sea businesses.

Head of energy at Pinsent Masons, Bob Ruddiman, said: “Leaving aside the fact that many in the industry thought this package was woefully inadequate when crude was $60 a barrel, we are now in $30 a barrel territory. The fact is that few businesses are actually subject to these headline rates and few feel the benefit.

“Without further concessions the UK faces a flight of capital, skills and technology which will not return. There is also a risk that the UK misses the opportunity to incentivise investment, and in so-doing give rise to a golden era for export of UK technology and knowhow. That would be a loss not just to the UK economy and Exchequer, but to the world’s oil producing regions.

“While few would argue that a decline from $100 oil has economic benefits, the impact of $30 oil is only just starting to be felt. Without a vibrant and positive industrial base supporting North Sea oil and gas activity, the Exchequer can expect to see export and manufacturing output hampered at a time when the UK economy does not have its troubles to seek.”

“Marginal tax rate on oilfield profits remains 67.5 per cent for fields subject to PRT and 50 per cent for other fields - compared to a general corporation tax rate of 20 per cent.

“Clearly there must be scope for further tax reduction and flexibility amid unprecedented volatility in global oil prices,” said Ruddiman. “A lack of succour for the industry will weigh heavily on UK output, while a well-incentivised industry could be world-beating.”

Pinsent Masons says a deferred exemption to the planned apprenticeship levy would ‘soften the blow’ of the potentially onerous costs the initiative could incur for North Sea businesses. From 2017, the scheme will see all companies with a wage bill of £3 million or more pay a 0.5 per cent tax to help fund apprenticeships.

Furthermore, the firm is urging the Government to consider the impact of the OECD’s Base Erosion and Profit Sharing (BEPS) project, which includes a proposal seeking to tackle aggressive and artificial tax avoidance by imposing a blanket restriction on relief for interest, which will have a particular impact on capital-intensive businesses.

“No-one is seeking to defend such structures or shirk responsibilities,” added Ruddiman. “But if the UK goes ahead with a blanket restriction on tax relief for interest, that could have a disproportionate effect on oil companies whose profitability has already been sharply eroded by the fall in oil prices.”