Oil firms to fund Fair Fuel Stabiliser

Perhaps the biggest surprise of today’s Budget was that the government is to make oil companies pay for a new fuel stabiliser when prices are high. And this has been […]

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By Kelvin Ross

Perhaps the biggest surprise of today’s Budget was that the government is to make oil companies pay for a new fuel stabiliser when prices are high.

And this has been branded a “huge blow to the oil industry” by international consultants KPMG.

The Fair Fuel Stabiliser, which motorists, campaigners and many in Parliament have been demanding for months, will be funded by increasing the supplementary charge on North Sea oil and gas production from 20% to 32% from Thursday.

Meanwhile, fuel duty will be cut by 1p a litre from 6pm tonight. Chancellor George Osborne said the government had to “listen and respond” when oil prices rise. He said the stabiliser would raise an extra £2bn, which would be used to delay the fuel duty rise until next year.

But KPMG partner Andrew Lister said: “Today’s announcement of yet another windfall tax is a huge blow to the oil industry. The proposed tax increases can only reduce the attractiveness of investment in the North Sea. The potential for the tax rate to be reduced if the oil price falls will be of no consolation to the UK’s oil and gas producers and offshore service companies.

He added: “While the Chancellor spoke about ensuring the UK is an attractive place to do business, with these announcements, the effective rate for many North Sea fields has more than doubled in less than a decade. At the beginning of 2002, the rate was 30 percent which increased to 40 percent in that year’s budget when a supplementary levy was introduced. This was then doubled in 2006, taking the effective rate to 50 percent in 2006 and today’s increase brings it to 62 percent. For some older fields, the rate can be up to 81 percent as they also pay a petroleum revenue tax”

Advisory firm Deloitte’s head of tax in Scotland, Derek Henderson, said: “The shock news that the supplementary charge tax rate has been increased up to 32% from 20% will be a disappointing surprise to the oil & gas industry.

“These changes come at a time when the oil & gas industry is struggling to maintain investment and grant access to its North Sea infrastructure and suffering from reduced exploration and appraisal levels.”

He added: “The North Sea tax regime has suffered from constant change over the past 10 years and this ongoing instability is likely to be detrimental to investment.The UK Continental Shelf needs to be attractive as it is competing against international oil & gas provinces and this latest change will not be helpful.

“The news that tax relief for decommissioning costs has been restricted is unwelcome and willraise further doubts over whether the government will honour its future decommissioning obligations.Combined with the announcements on fuel duty, the changes effectively shift the burden of tax from the motorist to the oil & gas exploration and production companies.”