I can announce today 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 Budget 2011. 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 March 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 they 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 have 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% 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.
Increases in the rate of supplement may be made by order. The Government intend to lay the necessary order before the House of Commons in the autumn, with the increase in RFES effective from 1 January 2012.
The OBR will publish the full scorecard costings of this measure over the forecast period at the time of its autumn forecast. Initial estimations are that the change is expected to cost around £50 million a year by the end of the forecast period (2015-16).
The Government will continue to engage with oil and gas companies on the case for new categories of field qualifying for field allowance, and will provide further updates to Parliament in due course.