Hefty tax breaks for fracking firms announced by the Chancellor yesterday immediately came under fire from MPs and environmental groups, who warned that they were “unwarranted” and could even be illegal.
George Osborne said Britain’s fledgling shale gas industry could bring “thousands of jobs, billions of pounds of investment and lower energy bills” to Britain, as he announced plans to dramatically cut taxes on fracking profits, from 62 per cent to 30 per cent.
Fracking, the controversial process that releases gas from shale by blasting a mixture of sand, water and chemicals into the rock at high pressure, has been linked to earth tremors, while critics of the technique say it poses risks to local water supplies.
Opponents of yesterday’s tax break questioned whether it was appropriate because it effectively provided shale gas projects a subsidy that was not available to the conventional North Sea oil and gas industry – although a handful of “economically challenging” offshore fields and Britain’s tiny conventional “onshore” hydrocarbon industry are also eligible for the same tax breaks.
Andy Atkins, Friends of the Earth’s executive director, said: “Yet again the long-term health of our economy has been completely undermined by the Chancellor’s short-sighted determination to keep the nation hooked on dirty and increasingly costly fossil fuels… MPs say they are unjustified – and they could be illegal.” The green group claims that Mr Osborne’s shale gas tax breaks could potentially breach EU law because they may represent “unlawful state aid” – putting shale gas operators in a “more favourable tax position” than the traditional North Sea producers.
As such, the Government needs to notify the European Commission of its intentions and to receive its approval, the group says. The Treasury declined to comment on whether it had notified the Commission, but sources said they did not consider it to be state aid as it was a new industry.
Joan Walley, chair of the cross-party Environmental Audit Committee, said: “At the Rio+20 summit and the G20, the Government committed itself to phasing out fossil fuel subsidies that encourage wasteful consumption and contribute to greenhouse gas emissions. The Government must set a target to reduce subsidies to harmful fossil fuels.”
A report published by the committee this week concluded that: “Hydraulic fracturing [fracking] and horizontal drilling have been present in the UK for many years. They are not new technologies.
“Fracking is not a technology warranting financial support to become viable and competitive, and on that basis it does not warrant a subsidy through favourable tax treatment.