LONDON (Alliance News) - Chief Secretary to the Treasury Danny Alexander Thursday said the government is committed to the UK oil and gas industry in the UK Continental Shelf in the North Sea and has said measures announced Wednesday will be the first phase of a staged process to incentivise investment in the area.
In an interview with Oil and Gas UK, Alexander said the measures announced in Chancellor George Osborne's Autumn Statement on Wednesday was the "first stage of moving to lower tax in the North Sea" but said due to "wider oil and gas pressures, we have to do it in an affordable way."
Alexander said the 2% reduction in the supplementary charge rate for the North Sea was set to be "the first of many which will be done in a staged way," and that it was "the first headline tax reduction in the North Sea for decades."
The government is in a tricky place. Overall tax revenue is falling, some of which comes from the North Sea, meaning it has less money available as it tries to reduce borrowing and the country's budget deficit. However, it also needs to drive up North Sea investments as eking the last of the oil and gas out of the area is becoming more costly.
The Chief Secretary said it was essential that the supplementary charge continues to fall over the coming years but needs to sit alongside other tax measures to make the North Sea an "incredibly attractive investment".
"We understand we have to lower tax revenues to get the maximum economic value out of the North Sea," he said. "The economic value comes first and tax receipts come second."
Alexander also outlined the government's plan to move from the current field allowances in place to a much wider and generic investment allowance. He admitted that the field allowances had contributed to around half of all investment in the North Sea in the last year, but added that it had brought complications.
The generic investment allowances will be based on costs, and most notably, will include exploration costs on successful sites.
"Exploration in the North Sea has not been enough in terms of the pipeline of investment," he said.
"Further work with the industry is needed on how to incorporate brownfield sites and how to enhance oil recovery," said Alexander.
To further encourage exploration in the North Sea, the government will invest a "small amount" of public money is conducting seismic work to give companies a better understanding of the area to reduce exploration risks and costs.
Another area that the government will aim to improve is the decommissioning of sites and infrastructure, which will be a "core area for the new Oil and Gas Authority" to encourage new entrants into the area.
It will also begin to look at the Norwegian tax credit system which has resulted in a high level of exploration in the country, to see if there is an "affordable&quo
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