Tax relief for North Sea oil groups

The Treasury said yesterday it would raise the annual rate of the Ring Fence Expenditure Supplement to 10 per cent from 6 per cent. It also said it would continue to consult oil companies on finding new categories of field allowance.

The move follows the government’s surprise tax increase on North Sea oil output in March, which led the industry to warn that investment in oil and gas would suffer, increasing imports and driving UK jobs abroad.

Oil companies cautiously welcomed the move. Norway’s Statoil said it would resume preparatory North Sea work suspended in the wake of the tax rise, while a UK trade group called it “constructive” and the shares of smaller firms rose.

“They’re alleviating some of the damaging effects of the tax increase and we could see more of this as the companies lobby the government,” said Sanjeev Bahl, analyst at Numis.

“It is really letting companies increase the value of their tax loss position if they’re not profit-able.”

The government earlier this year announced an increase in a tax on North Sea oil and gas producers to 32 per cent from 20 per cent to offset lower fuel duty for motor- ists.

In response, Statoil suspended £6bn worth of projects off Britain and utility Centrica said it had idled a gas field as profits had become marginal.

Statoil said it would resume preparatory work on the projects before making a final investment decision at the end of next year.

“With this announcement today, the negative tax impact has been neutralised,” a Statoil spokesman said.