Clause 183 - Relief in respect of decommissioning expenditure

Part of Finance Bill – in a Public Bill Committee at 5:00 pm on 19 June 2012.

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Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury 5:00, 19 June 2012

I will, with pleasure, tackle the questions about clause 183 and will also briefly refer to some of what clause 184 does. Clause 183 and schedule 21 make changes to ensure that the rate of tax relief on expenditure related to the decommissioning of oil and gas fields is capped at 20% for supplementary charge purposes. To set out some background, let me take us back to Budget 2011 when, as part of a sizeable package to support motorists, the Government introduced a fair fuel stabiliser. The Committee will well remember that at that Budget we were able to reduce fuel duty by 1p in order to support the motorist. This means that the rate of supplementary charge on the profits from oil and gas production is higher when, as now, oil prices are high and activity is more profitable.

At Budget 2011, the rate of supplementary charge was therefore increased from 20% to 32%, where it has remained. If oil prices fall below a trigger price of £45 per barrel on a sustained basis, the fair fuel stabiliser will reduce the rate of supplementary charge back to 20%, on a staged and affordable basis. However, as the clause makes clear, the rate of tax relief given for decommissioning will not change with that supplementary charge rate. As hon. Members may already know, licensees in offshore oil and gas fields are required by law to decommission their installations at the end of a field’s life. The oil and gas fiscal regime provides tax relief on the costs of that decommissioning.

The restriction in clause 183 and schedule 21 means that the rate of relief will remain at 20% for SC purposes. The total rate of relief that companies receive on their decommissioning costs will therefore remain at 50%, or 75% for fields that pay petroleum revenue tax. This measure is designed to ensure that companies are not encouraged to bring forward the decision to decommission mature fields when oil prices are high in order to obtain a higher rate of relief. The Government are committed to ensuring the maximum economic recovery of oil and gas in the UK continental shelf. Clause 183 and schedule 21 seek to ensure that we do not give companies an incentive which undermines this objective by allowing them to choose to decommission fields for tax reasons, even though they may still have potentially recoverable reserves.