Friends of the Earth has accused George Osborne of creating a bonanza for Britain’s big energy companies by providing almost £1bn of tax breaks designed to boost North Sea oil and gas production.
FoE said the chancellor was going against the advice of Jim Yong Kim, the president of the World Bank, in providing subsidies designed to ensure “every last drop of oil” is extracted from the UK’s rapidly declining reserves.
It said Osborne had hugely expanded field allowances, introduced by Alistair Darling in 2009 to encourage production from “small or technically challenging new fields”. These were worth £300m to the sector over the past three years.
David Powell, FoE’s economics campaigner, said in the current financial year new field allowances had been created and an existing one expanded. As a result, tax breaks since the 2012 budget were worth £864m to the industry and were likely to rise further as a result of the field allowance to Dana Petroleum for its .6bn oil and gas development east of Shetland, announced in late 2012.
“With almost £1bn of tax breaks lavished upon them this financial year alone, it’s bonanza time for dirty gas and oil,” Powell said. “George Osborne is bending over backwards to help the big oil barons, but getting him to support renewable energy is like trying to squeeze blood from a stone.”
North Sea oil production has fallen sharply since the 1990s, but the high price of oil on global markets has made uneconomic oilfields commercially viable. The tax breaks exempt the industry from a certain amount of tax from particular fields, helping to offset the £2bn-a-year supplementary charge that Osborne imposed, to the fury of oil and gas companies, in his 2011 budget.
A Treasury spokeswoman said: “The government’s package of changes to the oil and gas tax regime is expected to stimulate billions of pounds of investment, supporting jobs, delivering revenue for taxpayers and helping ensure we make the most of this valuable national asset. The changes should be considered in the context of the oil and gas tax regime as a whole, including the supplementary charge, which was increased at budget 2011.”
Oil and gas revenues were more than £11bn in 2011-12, but are expected to decline to £4.5bn by 2017-18.
Powell said Osborne was using tax breaks to “stimulate harmful activity” regardless of the amount it brought in to the exchequer. The Treasury had already placated the industry by promising to legislate for a fixed rate of tax relief on decommissioning oil and gas rigs, he said, something for which North Sea producers had long been lobbying.
“While the chancellor thrashes around desperately for another fossil fuel fix, the real long-term solution to our economic crisis lies in ending our gas and oil addiction and exploiting the UK’s huge clean energy potential,” he said.
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