The Government has announced on 13 January 2014 that local authorities will be able to keep 100 per cent of business rates collected from shale gas development in England.
This tax boost could be worth up to £1.7m for a "typical shale gas site", which may well have an impact on councils considering planning applications for shale gas exploration, although it is not a relevant factor that they are allowed to take into consideration. Readers should note that a "typical site" has been defined by DECC as one with 12 production wells.
The announcement builds on the Government's pledge to strengthen community benefits from shale gas exploration. Local communities are promised to receive £100,000 at the exploration stage for each test pad drilled in their area. Further at production stage, 1 per cent of revenues will be paid to local communities if shale gas is discovered. The share of revenue may amount to between £5 and £10 million per site, which would be spread over the life span of a site.
Under the current tax scheme, all businesses are required to pay a tax to their local council ("business rates"). Local authorities can keep 50 per cent of business rates income including growth and the rest is paid to the Treasury. The impact of this new scheme places shale gas on equal footing with renewable energy and new nuclear projects, for which councils have been able to retain 100 per cent of business rates since April last year.
This decision followed an announcement from the French company, Total, that it is going to invest £30m in drilling exploratory wells in Lincolnshire. Following the Autumn Statement 2013, a competitive tax regime will be available to oil and gas companies investing in shale gas. In addition to a substantial tax reduction from 62 per cent to 30 per cent, companies will receive an allowance equal to 75 per cent of their capital spend on shale gas projects.
According to the Prime Minister:
"A key part of our long-term economic plan to secure Britain's future is to back businesses with better infrastructure. That's why we're going all out for shale. It will mean more jobs and opportunities for people, and economic security for our country."
While this tax break is designed to promote the shale industry, readers should note that so far only few licensed areas in the UK have permitted exploratory drilling. Bath and North-East Somerset Council, where the Hicks Gate licence is located, have already indicated that the business rates boost will not influence their decision to prohibit shale gas development due to the potential for damage to local hot springs. Reactions of other Councils remain to be seen to determine whether this favourable scheme will achieve its desired effect.