Tax breaks could drive UK fracking industry

Extracting natural gas could become a better option for energy companies in the UK following the announcement that hydraulic fracturing - fracking - could result in huge tax breaks. George Osborne, chancellor of the exchequer, has pledged that taxes will be cut by 30 per cent for shale gas production in an effort to increase the number of companies opting to undertake natural gas drilling.

This tax break is a large difference when compared to the rates of tax paid by the majority of the oil and gas industry in the UK. Currently the top rate paid by all North Sea oil operations is 62 per cent, whilst the older offshore oil fields can end up paying up to 81 per cent.

However, despite the reduction in the amount of tax paid, natural gas companies will be required to provide benefits for the communities that are in close proximity to drilling sites. Each well drilled will mean that the company must provide at least £100,000 worth of benefits for local communities. This benefits plan could further increase the uptake of fracking as communities throughout the UK could be less likely to object to operations.

Mr Osborne said: "Shale gas is a resource with huge potential to broaden 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.

"This new tax regime, which I want to make the most generous for shale in the world, will contribute to that. 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 tax break could drive an increase in the natural gas industry and replicate the success of the US, which has seen a huge growth in the amount of natural gas being extracted and used throughout the country. It could also help Britain to reach its emissions targets as natural gas produces only low levels of carbon dioxide emissions when combusted.