By Marcus Leach
The Government today, Tuesday, announced that the annual rate of the Ring Fence Expenditure Supplement (RFES) for the North Sea fiscal regime will be increased from 6% to 10%, following discussions with industry initiated at the 2011 Budget.
This provides extra support for investment in the North Sea, including in marginal fields that qualify for the current field allowance, and will also support the ongoing considerations on new categories of field allowance.
In the Budget, as part of a package of measures to help motorists cope with high petrol prices, the Government announced a Fair Fuel Stabiliser that would be funded by higher taxation of the profits from oil and gas companies when oil prices are high. The Government said at that time that it would consider with the oil and gas industry the case for a new category of field that would qualify for field allowance to support investment in marginal fields.
In the course of those discussions with industry, the Government has identified that the ability of a company to benefit fully from the field allowance is dependent on whether a company has sufficient current taxable income against which to off-set expenditure. This is addressed to some extent by the Ring Fence Expenditure Supplement, which currently allows companies with insufficient taxable income to uprate losses by 6% for six accounting periods.
The increase to 10% announced today will help ensure existing field allowances work more effectively and equitably to support investment in marginal fields. It also brings RFES in line with the discount rate typically used by the sector.
The Government will continue to engage with oil and gas companies on the case for new categories of field qualifying for field allowance.
Justine Greening, Economic Secretary to the Treasury, said: “The Government was clear at the Budget that it would engage with oil and gas companies, including to consider the case for further support for marginal projects. Today’s change demonstrates our commitment to ensure current allowances work effectively and equitably, and lays the groundwork for further constructive discussions on field allowances.”