'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 935.

    "And will continue to do so as long as there is wind !" Try 10 years when performance drops by a third, after 12-15 years they are busted. Lets not also forget all the on-shore wind farms lining wealthy landowners pockets at the expense of the poor and pensioners not to mention the amount of idle time they have, and when they are switched off in high winds.

  • rate this

    Comment number 934.

    Tax incentives on foreign companies? Why? They will tell HMRC they are selling it out of Ireland and not pay a penny in taxes anyway. In reality HMRC will end up giving them tax rebates.

  • rate this

    Comment number 933.

    915. Dryad1313
    Since the BBC seems to think it's ok for NigelB to call environmentalists "yurt-dwelling, muesli munching loons", perhaps I can retaliate by calling capitalists "mansion-dwelling, champagne-swilling tax dodgers". Is that ok, BBC? I mean, you can hardly ban my comment after you refused to ban NigelB's, can you.

    I must say Nigel's life sounds a lot better than yours

  • rate this

    Comment number 932.

    Deoending on the special interest lobby that you listen too, nuclear is dangerous, fracking causes earthquakes, oil & gas are melting the arctic, windmills look horrible...it's amazing how the environmentalists are against everything, but have no alternatives.

  • rate this

    Comment number 931.

    You can bet your Fracking life us consumers in the UK wont get cheap energy tariffs...

  • rate this

    Comment number 930.

    Strange how that couple of million school leavers entering the job market any time now hasn't receive mention in the media ? ?

    What propaganda has the media / government got lined up for them ?

    Let me guess . . job snobs, immature, lazy . .

    Start cleaning your office out Clegg . .!

  • rate this

    Comment number 929.

    I thought this was just the kind of stimulus that the left wanted? Promoting industry especially in the North where a lot of this gas is. This should provide jobs, growth and energy security. Also isn't 30% tax still quite a lot to pay?

  • rate this

    Comment number 928.

    This should have been done years ago,as for the anti-brigade,just to let them know the view from my bedroom looks at Berkeley power station, who cares not me,let them supply a alternative out of there own pockets. or is it the health & safety mob trying to stop it. America leading the way again and selling it to us. FED with the minority calling the shots.

  • rate this

    Comment number 927.

    This has a very unpleasant smell to it.

  • rate this

    Comment number 926.

    I cannot understand environmentalists who would rather see the less well off in the UK live in fuel poverty, than exploit a resource that has proved, in the USA to reduce energy prices dramatically.

  • rate this

    Comment number 925.

    I don't see why companies should get tax breaks to poison our subterranean water with chemicals. There will be a boom in bottled water fro areas like France that have forbidden fracking. The British public will put up with anything as long as they have their soaps and junk food.

  • rate this

    Comment number 924.

    910. Liv.

    Ah. The London Array. Can't see that. Just subsidize it, like the 14 Don Quixote windmills in view that have not rotated for days. They'll probably produce something in the early hours when it's not needed. Don't suppose they'll be fracking under London either.

  • rate this

    Comment number 923.

    Idiocy of the highest calibre.

  • Comment number 922.

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

  • rate this

    Comment number 921.

    Can this govt EVER tell the truth? 'The UK govt points to the dramatic effect Shale gas has had on the US market'. Utter drivel. Before arguing check EIA.gov. There is a huge potential in shale gas for the US but it hasn't yet been realised. For those dismissing the 'greenies' also read the EIA's concerns over Fracking. These, unlike the UK, are based on real life. As for more wealth tax breaks...

  • rate this

    Comment number 920.

    Shale gas extraction means government policy has kowtowed to market forces and the growth in wealth around the world due to natural resources and countries like the BRIC nations are getting rich because of mining,oil and gas.
    This small island needs all the money it can get especially when we waste money on war and nuclear weapons.If everyone else is doing it then so should we.

  • rate this

    Comment number 919.

    Why jump the gun, if there are companies willing to exploit the Fracking process without getting a tax break, then they should have been given the chance. Now the cat is out of the bag, no company will do anything in the UK, unless they get a tax cut. Economy of the MAD house.

  • Comment number 918.

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

  • rate this

    Comment number 917.

    I would have thought tax breaks shouldn't be necessary if the process is economic? It's funny isn't it Margret Thatcher and the Tories allowed the pits to go into terminal decline. They argued that it wasn't right for the tax payer to support uneconomic industries now the tax payer is expected to give tax breaks for shale gas and support it? Hmm I wonder who the shareholders are?

  • rate this

    Comment number 916.

    Thorium Molten Salt Reactors(LFTR) are the way to go as a form of nuclear power that's safe, produces orders of magnitude less waste and is far more efficient than current Pressurised Water Reactors.
    Cheap electricity from LFTR would make industries like vertical farms(which saves land) and sea water desalination economically viable. Wind, solar, or tidal power would be far too expensive for this.


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