Oil and Gas Industry Stands to Reap Millions From Rate Cuts Holyrood Tax Plan Raises Questions As Rocketing Crude Prices Help Fuel Record Profits

By MARK WILLIAMSON

COMPANIES in the booming oil and gas business are in line for savings on their business rates bills running into millions of pounds from April, The Herald has learned.

Sector players will enjoy significant cuts in property taxes as the Scottish Executive brings rates north of the border into line with those in England, although the Westminster government is increasing oil firms’ tax bills.

According to an Executive spokesman, in the tax year starting in April these will amount to around [GBP]2m, shared by firms in a range of businesses connected with oil and gas, including petrochemicals.

Further savings will be made in the following year.

Industry experts said in the multi-billion pound world of the oil and gas industry the figures concerned were small change.

The United Kingdom Offshore Operators’ Association, which represents firms such as BP, insisted that compared to the billions that will be generated by tax increases announced in December [GBP]2m was a drop in the ocean.

However, amid uncertainty about exactly how much exploration and production companies will gain, the concessions are likely to prove controversial as taxpayers feel the effect of the oil price boom at petrol pumps.

News of Gordon Brown’s decision to increase the tax on North Sea profits by ten percentage points in December provoked howls of outrage from many oil and gas firms.

These included the supermajor Royal Dutch Shell, which said it was cutting its exploration activity in the mature North Sea in response.

However, the transformational effect of the oil price boom on oil firm’s finances will be writ large this week when Shell is tipped to announce profits of around [GBP]13bn, the biggest yet recorded by a UK firm.

While much of the firm’s kit is located offshore and likely to be exempt from business rates, the company is one of a number of industry giants with big office facilities in the Aberdeen area.

The poundage rate used to calculate the company’s rates bills in respect of these will fall over the next two years under measures announced by the Executive last September.

As a result, the company is in line for a boost to profitability from Scottish ministers under an initiative whose effect seems to run counter to the Westminster government’s policy, in one significant industry at least.

The fact that the decision to cut poundage rates followed long- standing complaints that small firms were hit hardest by the discrepancy between rates bills in Scotland and elsewhere may call into question the wisdom of a blanket cut.

However, UKOOA said the reduction should provide an important boost to smaller firms in the supply chain.

Inquiries by The Herald indicated that ministers may have been unaware of how measures to reduce property taxes would affect the oil and gas industry when the decision to cut poundage rates in each of the next two tax years was taken.

This will result in a cut of [GBP]100m in the total payable by all Scotland’s firms in 20062007. Ministers have said they will save a further [GBP]180m the following year.

A spokeswoman for the Executive’s finance department said it did not hold information on the total amount of rates paid by exploration and production companies.