'Generous' tax breaks for shale gas industry outlined

Bowland shale drilling rig The UK is believed to have large resources of shale gas that have yet to be extracted

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The government has outlined plans to give tax breaks to companies involved in the UK's nascent shale gas industry.

It has proposed cutting the tax on some of the income generated from producing shale gas - found in underground shale rock formations - from 62% to just 30%.

The plans would make the UK the "most generous" regime for shale gas in the world, the government said.

But they have been criticised by environmentalists, with Friends of the Earth calling them a "disgrace".

Greenpeace added that communities affected by fracking - the technique for extracting shale gas - faced a lot of disruption for very little gain.

Chancellor George Osborne says Britain must be" at the forefront of the shale gas revolution"

Chancellor George Osborne said shale gas was a resource with "huge potential" for the UK's energy mix.

"We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits," he said.

"I want Britain to be a leader of the shale gas revolution because it has the potential to create thousands of jobs and keep energy bills low for millions of people."

The shale gas firm Cuadrilla welcomed the news and said it would consider the implications.

"Whilst we are still in the exploration phase, we believe that shale gas has the potential to make a considerable contribution to the UK's energy supply and security, while at the same time creating thousands of jobs and generating very significant tax revenues and community benefits," said Cuadrilla's chief executive, Francis Egan.

Infographic showing shale gas extraction

The UK is believed to have large resources of shale gas.

A recent report from the British Geological Survey estimated there may be 1,300 trillion cubic feet of shale gas present in the north of England alone - much of it in the Bowland Basin under Lancashire.


Just how generous are these tax breaks?

Gas production is typically taxed at 62% although in some parts of the north sea long standing operations are taxed at up to 81%.

So the 30% tax rate proposed for shale gas does look generous.

The government insists it is in line with what already exists for small or challenging fields offshore.

What's more it won't be for the lifetime of the well.

In practice part of the profits from the well will be exempt from the higher tax rate. Just how much is still to be decided, but it will be linked to the amount of investment that a firm has made.

The industry insists the tax break is necessary as initial costs will be high and there is still much uncertainty about how much oil and gas will be liberated from our shale deposits.

But with up to 50 wells expected to be drilled in the next 2 to 3 years - the hope from the government is that this tax announcement will help to kick-start what could be a hugely important new industry.

Drilling companies have previously estimated that they may be able to extract about 10% of this gas - far in excess of the three trillion cubic feet of gas currently consumed in the UK each year.

However, the industry is still in its infancy with a handful of companies holding licences for shale gas exploration in the UK, none of which have begun extracting gas.

Water quality

In backing shale gas exploration, the government points to the experience of the US, where a shale gas boom has had a dramatic effect on the energy sector.

Under its plans, the tax break would apply to a proportion of the income generated from shale gas production. What that proportion is will be determined after a consultation.

BBC industry correspondent John Moylan says the industry regards the tax incentives as necessary, as costs are likely to be high during the initial exploration phase over the coming years.

The government has also confirmed plans to give communities that host shale gas sites £100,000 per site, and up to 1% of all revenues from production.

That is designed to offset some of the controversy surrounding the process of fracking.

Science Editor David Shukman explains the process of fracking

There are concerns the process, which involves pumping high pressure water, sand and chemicals into rock to force out the gas, is related to water contamination and even earth tremors.

Start Quote

Promising tax hand-outs to polluting energy firms that threaten our communities and environment, when everyone else is being told to tighten their belts, is a disgrace”

End Quote Andrew Pendleton Friends of the Earth

Water companies have warned that the quality of drinking water must be protected "at all costs".

Water UK, which represents the UK water companies, points out that fracking requires huge amounts of water which could put a strain on local supplies.

It also says the drilling and the fracturing process could damage water pipes.

"The water industry is not taking sides. If it (fracking) goes ahead we want to ensure corners are not cut and standards compromised," said Jim Marshall, policy and business adviser at Water UK.

Environmental groups argue that investment in the industry will divert attention from the need to develop renewable sources of energy.

Andrew Pendleton, from Friends of the Earth, condemned the move.

"Promising tax hand-outs to polluting energy firms that threaten our communities and environment, when everyone else is being told to tighten their belts, is a disgrace," he said.

"Ministers should be encouraging investors to develop the nation's huge renewable energy potential. This would create tens of thousands of jobs and wean the nation off its increasingly expensive fossil fuel dependency."


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  • rate this

    Comment number 335.

    And did I also mention that the word fracking makes me smile as it sounds cheerfully rude.

    There may well be hidden dangers as well but I would hope that relevant scientists would come up with improvements to the processes involved and I feel that we could manage whatever happens.

    Fingers crossed,,,

  • rate this

    Comment number 334.

    This is driven by greed and is all about profit. Read up and wake up please. If you Google fracking in the USA you will realise how very, very dangerous this is - pollution of underwater reservoirs, pollution - it is NOT clean energy.

    Bribing people to accept this is immoral.

  • rate this

    Comment number 333.

    If shale gas is so cheap to produce then why do the energy companies need a tax break to make it competitive?

    Also every few years we have a water shortage in the UK; considering the amount of water required for fracking how will this affect public supply and water bills?

  • rate this

    Comment number 332.

    How much longer will we continue taking fossil fuels out of the ground to burn, when we know the consequences. Osbourne has his head buried in the shale and drunk on possible future revenues! We will eventually destroy this planet, and future generations will pay the price for corporate greed and government weakness of today. Should we really be dabbling in gas with the knowledge we have? No!!!

  • rate this

    Comment number 331.

    Another pay rise for MPs - have a look at the members interests register - too many of the cabinet stand to personally gain here.

  • rate this

    Comment number 330.

    305. ClaudeBalls
    Lucky you had a Labour Government for 13 years so they could all be re-opened.

    Margaret Thatcher ordered them to be flooded so that they could never be reopened.

  • rate this

    Comment number 329.

    Along with the nuclear renaissance yet another folly paid for by the taxpayer…or not??

    I like to find out, that’s why I signed this petition and hope you sign and promote it too


  • rate this

    Comment number 328.

    This is about creating a balanced energy portfolio, yes we need to continue to push renewables but they can not sustain our energy needs alone, this is a good thing that will reduce our dependence on foreign supplies & create jobs at a time they are sorely needed. Environmentalists who complain need to gain a real understanding of our energy needs & situation instead of bleating false information

  • rate this

    Comment number 327.

    @14. Colski

    If you don't have a decent carrot (for instance with lowish tax rates) then companies wont come here in large volumes.

    Then you wont get any revenues at all!

  • rate this

    Comment number 326.

    There's a Well about half a mile from me.

    I would rather have a Nuclear Plant next door.

    My two options are suck it up or move.

  • rate this

    Comment number 325.

    228 davedmuso
    "Fracking was suspended in this country after seismic problems caused by a relatively small operation compared to what is now being proposed and even encouraged.

    What has changed since then to make it safe all of a sudden?"

    You get more seismic activity when a tube train goes past. Maybe we should stop them running.

  • rate this

    Comment number 324.

    This is the last straw. We live in an area of outstanding natural beauty where there is shale drilling already underway.
    The environmental effects ARE devastating that is the overwhelming consensus. To use our land as some gigantic experiment to 'lead the way' is plundering at its worse. I have voted Tory for 30 years after this never again.

  • rate this

    Comment number 323.

    I wonder what George Osborne's grandchildren and great grandchildren will think of him?

  • rate this

    Comment number 322.

    Fro those people that are desperate for this to happen, tell me what you are going to do to support the people who's homes are impacted, environmentally and commercially (the losses of value in their homes).
    Also, answer the question on why it is that so many members of the cabinet have direct and indirect interest in the success of fracking. Osbornes father in law for one.

  • rate this

    Comment number 321.

    Assuming this is going to go ahead, and Osborn's lobbying father-in-law will doubtless say it must, it will be interesting whether Tory voting Brighton, or Labour voting Swansea, Hull and Blackpool get 'first frack' of the whip.
    (I'm still wondering where that 62% tax figure comes from... anyone know?)

  • rate this

    Comment number 320.

    Will it be law that these firms pay for quake damage.

  • rate this

    Comment number 319.

    It just goes to show how naive the government is. This won't make energy cheaper... energy companies will just use the tax breaks to line their pockets with profit.

  • Comment number 318.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 317.

    So let's get this straight, we have massive reserves of gas which is "apparently" cheap and clean to extract but we need to give tax subsidies to companies to do it.
    So when the last drop has been extracted like North Sea oil and the £370 billion in venue has disappeared, the masses wont bother to ask where...

    This country and it's largely apathetic populous is beyond saving.

  • rate this

    Comment number 316.

    No cause for alarm.
    Just heard on Radio 4 that Vince Cable is supporting it - so it's not likely to happen.


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