Osborne Said to Pledge Long-Term Tax Relief for U.K. Oil Fields

March 17 (Bloomberg) -- Chancellor of the Exchequer George Osborne will guarantee tax relief for the decommissioning of North Sea oil and gas rigs as he seeks to spur investment in Britain’s energy sector, a person familiar with the plan said.

Osborne will say in his March 21 budget that the government will sign contracts with companies such as BP Plc and Premier Oil Plc guaranteeing tax relief for the lifetime of a project, said the person, who declined to be identified because the proposals aren’t yet public. The contracts will prevent future governments from changing the rate of tax relief, which is typically 50 percent and can reach 75 percent.

The government is seeking to unlock as much as 17 billion pounds ($27 billion) of investment in North Sea energy that is being held back because of uncertainty over decommissioning costs, which amount to 30 billion pounds for the rigs currently operating, the person said. The Treasury angered oil producers last year by levying higher taxes to pay for a cut in fuel duty for drivers.

The plan follows months of talks between the industry and Treasury minister Chloe Smith, the person said. In July, the Treasury said it would increase a tax allowance to encourage investment in North Sea oil production as it sought to soften the impact of last year’s tax increases.

The Ring Fence Expenditure Supplement for the North Sea will rise to 10 percent from 6 percent, the Treasury said in a statement yesterday. The move aims to increase investment in marginal fields that qualify for the current allowance.

Separately, Osborne will also announce plans to extend local pay agreements to civil servants in government departments including the Department for Work and Pensions, the Home Office and the Department for Transport, the person said. Osborne said last year the wages of local government workers should be negotiated locally rather than be subjected to national pay bands.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net