Budget 2016: Chancellor George Osborne cuts North Sea taxes

The chancellor has announced a major overhaul of the North Sea tax regime, in response to difficulties facing the UK oil and gas sector.

In his Budget statement, he said Petroleum Revenue Tax (PRT) would be "effectively abolished", having cut it last year from 50% to 35%.

The existing supplementary charge for oil companies will also be cut from 20% to 10%, backdated to 1 January.

The SNP's deputy leader Stewart Hosie welcomed the changes.

But he said he was "slightly disappointed in the lack of strategic direction" and that there was no mention of exploration or production allowances for the industry.

Mr Hosie said tax receipts from the North Sea had dropped to extremely low levels.

• Brian Taylor: Osborne casting forward and backward

• Follow all the reaction as it happens on Budget 2016 Live

• In-depth coverage with the BBC's Budget 2016 special

He told BBC Scotland that Mr Osborne should not have introduced the supplementary tax in 2011 and he should have acted "much sooner" to help the struggling sector.

Scotland's Deputy First Minister John Swinney had previously written to UK chancellor George Osborne, urging him to use his Budget to help the sector by doing more to encourage further exploration.

Scottish Labour Leader Kezia Dugdale also said support for the oil and gas industry did not "go nearly far enough".

She said: "What we needed to see from the chancellor today was support to make sure that essential infrastructure such as platforms and pipelines are not decommissioned early."

Analysis by Brian Taylor, BBC Scotland political editor

I am uncertain as to whether there is much of the poetic in the soul of the Chancellor. But, still, Gideon was casting both backward and forward in his Budget statement today.

The backward bit came when he transformed an announcement of support for the North Sea oil industry into an excoriating attack upon the SNP.

In a prolonged section - to the sound of his backbenchers jeering in the general direction of the Nationalists - George Osborne said that the tax support announced for the North Sea was only feasible because of "the broad shoulders of the UK."

Reflecting back to the independence referendum, Mr Osborne argued that Scotland was better together with the rest of the UK. Cue growling from said SNP benches.

But there was a look forward as well - to the EU referendum due on June 23. Much of Mr Osborne's budget was aimed at strengthening support for the PM's position in that plebiscite - or, more precisely, avoiding issues which might see that position deteriorate.

Read more from Brian

Industry body Oil and Gas UK welcomed the chancellor's announcement, saying the move would reduce the headline rate of tax paid on UK oil and gas production from between 50% and 67.5% to a rate of 40% across all fields.

Chief executive Deirdre Michie said: "Today's announcement does indeed mark further progress in modernising the tax regime for an increasingly mature basin.

"We welcome these measures as they will build on the industry's achievements in improving efficiency in the face of low oil prices, boosting the sector's competitiveness and helping to restore investor confidence.

"We will continue to work with the Treasury to complete its 'Driving Investment' plan to ensure that the fiscal regime reflects the business needs of a maturing basin and signals to global investors that the UK is truly open for business."

'Real threat'

Environmental charity Friends of the Earth expressed disappointment at the tax cuts.

Campaigner Liz Hutchins said: "The chancellor's budget was full of 'next generation' rhetoric, but tax breaks for the climate-wrecking oil and gas industry pose a real threat to the security of people, the economy and planet.

"This government should do far more to develop the UK's huge renewable energy potential - creating jobs and putting us at the forefront of building an economy fit for the challenges of the future."

The UK government said the North Sea Budget measures were worth £1bn over five years.

In his budget speech, Mr Osborne said: "The oil and gas sector employs hundreds of thousands of people in Scotland and around our country.

"In my budget a year ago I made major reductions in taxes, but the oil price has continued to fall so we need to act now for the long term.

"I am today cutting in half the supplementary charge on oil and gas from 20% to 10% and I am effectively abolishing Petroleum Revenue Tax too - backing this key Scottish industry and supporting jobs right across Britain."

Other Budget measures particularly affecting Scotland included:

• "Good progress" on a City Deal for Inverness and move towards a deal for Edinburgh and South East Scotland.

• Duty on Scotch whisky to be frozen

• Fines from banks caught up in the Libor scandal will pay for community facilities in Helensburgh and for naval personnel at Faslane

• Some £5m will be provided for the new V&A museum in Dundee

• The Scotland Office said Scotland's allocation under the Barnett Formula will increase by £658m over the next four years

The North Sea offshore industry has been hit hard by plunging oil prices and has shed thousands of jobs in the North Sea over the past year.

A recent report by industry body Oil and Gas UK said that less than £1bn was expected to be spent on new projects this year, compared to a typical £8bn per year in the past five years.

On Wednesday morning, Brent crude was standing at just under $40 a barrel, about 27% lower than it was a year ago and a fraction of its mid-2014 high of $115 a barrel.

Earlier this year, Prime Minister David Cameron announced a £20m funding package to help the North Sea oil and gas sector.

Mr Osborne's March 2015 Budget also included a £1.3bn package of measures aimed at easing the difficulties facing the industry.

The Scottish government has also announced a new £12m fund to help people who face losing their jobs in oil and gas to gain new skills and find new work.