A drilling rig used by prospector Cuadrilla, which could benefit from the fracking tax breaks announced in the Autumn Statement

Tax breaks for fracking firms in Autumn Statement

Tax breaks for firms fracking for shale gas announced today would give the UK the most competitive tax regime in Europe.

In his Autumn Statement Chancellor George Osborne said that he would introduce "a new tax allowance to encourage investment in shale gas that halves tax rates on early profits".

Under the tax break plans, the rate payable on a portion of a firm's profits is more than halved from 62 per cent to 30 per cent to reflect "the challenging nature of these developments". Companies will receive an allowance equal to 75 per cent of their capital spend on a project.

Independent analysis suggested the change would give the UK the most competitive tax regime for fracking in Europe, the Statement said, and more attractive than the US, where fracking has been used extensively.

The Treasury document said exploiting shale would "put downward pressure on wholesale prices and increase the UK's security of supply".

"The economic benefits that shale gas could bring – thousands of jobs, billions of pounds of business investment, and lower energy bills – would extend beyond oil and gas to other manufacturing sectors, which is why major industrial employers have publicly supported its development," it added.

"The new tax allowance builds on the success of offshore field allowances in increasing investment in technically and commercially challenging fields."

It said the Government was "committed to ensuring local communities benefit from shale gas projects and to streamlining the regulatory framework, while making sure activity is safe and sustainable".

In the wake of protests at planned drilling sites, communities have been guaranteed £100,000 for every fracked well site and a share of any revenues of at least 1 per cent of revenue – up to as much as £10m over the lifetime of a project.

But opponents have raised fears of the impact on local communities, including the possibility it could contaminate or reduce local water supplies and cause mini-earthquakes.

Friends of the Earth executive director Andy Atkins said: "Handing tax breaks to climate-wrecking fracking firms simply highlights the fact that George Osborne hasn't done his homework. They won't lower bills, MPs say they are unjustified and they could be illegal."

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