Oil & Gas UK Economic Report 2014

Few UKCS investments can proceed at today’s marginal tax rates of 62 per cent and 81 per cent. Since the Supplementary Charge (SC) to Corporation Tax was increased in the Budget of 2011, field allowances (FAs) have become essential vehicles for retaining investors’ confidence which would otherwise have been undermined by the lack of fiscal predictability. The review of the fiscal regime announced by the government in the Budget of 2014

provides a most timely opportunity to create arrangements that are far simpler than the current, complex combination of high tax rates and FAs 8 . Figure 17 illustrates this point all too clearly; an increasing proportion of future capital investment is dependent on receipt of FAs. It is also clear that the new regime will need to be capable of evolving, as the years go by, in pursuit of MER UK.

Figure 17: Capital Investment by Type of Field Allowance

16

14

12

10

8

Ultra HPHT

6

4 Capital Investment (£ Billion)

2

Not in Receipt of Allowance

0

2013

2014

2015

2016

2017

2018

Source: DECC, Oil & Gas UK

8 For full details of taxes and FAs applicable to the UKCS and how these interact, please refer to Appendix a.

38

ECONOMIC REPORT 2014