Tax cut plan for sinking oil firms

OIL explorers could see their tax bills cut in half under radical proposals being considered by the Treasury, writes James salmon.

Ministers are discussing a range of options to address the collapse in oil prices that has hammered oil firms.

It comes amid concerns that the tax cut from 62pc to 60pc unveiled by the Chancellor in the recent Autumn statement represents a token measure which will fail to boost exploration.

Chief secretary to the Treasury Danny Alexander has responded to criticism of the move, making it clear that he would like the headline rate to fall even further.

The latest talks with the industry, headed by trade body oil & Gas UK, has centred on a number of key proposals. The most drastic would involve scrapping the 30pc supplementary corporation tax levied on top of the 32pc basic rate paid by the industry. If applied, the cut would apply only to new fields, not existing ones.

experts have warned that the 47pc slump in oil prices from $114 a barrel to $61 is having a devastating impact on the oil industry.

robin Allan, chairman of the independent explorers’ association Brindex, said the industry was in ‘crisis’ and that almost no new projects will be profitable if oil plunges below $60 a barrel.

Just 28 wells were drilled this year, the lowest since exploration began in the north sea i n the 1960s, according to specialist adviser Hannon Westwood.

A separate study by Aberdeen University’s business school predicted investment i n the north sea would reduce by as much as £40bn by 2050 i f the oil price remains so low.

Dr Alix Thom of oil & Gas UK warned: ‘There are a large number of oil fields that are no longer economic due to the current price.’