Measures in the Budget aimed at supporting the North Sea oil industry have been questioned by investment experts, who say they will have little impact.
Chancellor George Osborne responded to plunging crude oil prices by granting North Sea outfits a tax cut worth £1.3bn – effectively a reversal of the hike he imposed in 2011 when oil prices were high.
He said he would reduce the supplementary charge – levied on top of corporation tax – from 30 per cent to 20 per cent, and reduce the petroleum revenue tax from 50 per cent to 35 per cent to “promote investment in incremental projects in older fields and extend the life of key infrastructure”.
But fund managers have questioned the effect it will have on them investing in the industry.
Colin Morton, UK equity manager at Franklin Templeton, said: “For a lot of individual companies, this is not significant enough. The major oil companies have some exposure to the North Sea, but it’s a relatively small part of their overall business and it doesn’t make an investment case.
“We are struggling to find any company that it will be massively groundbreaking for.”
Mark Martin, UK equity manager at Neptune, said: “Shares performed reasonably well after the Budget, but this is more driven by what happened in the States and the Federal Reserve rather than what happened in the Budget itself.”
After the Budget, Premier Oil, a North Sea-based oil producer, saw its share price drop from 140p to 135p. After the Fed meeting, it made that back and a bit more, with a high of 146p the next day.
In a statement, Fed chairman Janet Yellen suggested interest rates would not rise until there was further improvement in the labour market, something the markets responded positively to.
Kathleen Brooks, a research director at Forex.com, said while the measures to boost North Sea oil were “welcome” and “potentially good news for jobs in the industry”, this would be “trumped by the oil price decline and the bearish supply data”.
“Crude oil inventories rose to one of their highest ever levels last week of 9.6m barrels,” she said. “This could limit the upside for energy stocks and the FTSE 100.”
Revenue & Customs said the changes were expected to increase oil production by about 15 per cent by 2019, and encourage £4bn of investment over the next five years.
But none of Mr Osborne’s announcements were enough to make Mr Morton or Mr Martin alter their portfolios.