UK government supports shale gas developments with business tax breaks for local authorities

David Cameron

Councils in England will be allowed to keep all the business rates collected from shale gas sites, which could be worth up to GBP1.7m annually for a typical site, the UK government announced on Monday.

Currently, local authorities only receive 50% of business rates from shale gas developments. The new tax boost for local councils will be directly funded by central government as part of its long-term economic plan to build a stronger, more competitive economy and create jobs.

There will also be further benefits for local communities, which will receive GBP100,000 when a test well is fracked, plus a further 1% of revenues if shale gas is discovered. It is anticipated that this could be worth GBP5m to GBP10m over the lifetime of a typical producing site. The industry has confirmed that further consultation will take place on how this money can best be shared with local communities. Options include paying direct cash payments to people living in the vicinity of the fracking site, as well as the setting up of local funds directly managed by local communities.

Energy companies that carry out the hydraulic fracturing process to extract the shale gas, called fracking, drill deep underground and release a high-pressure mix of water, sand and chemicals to crack rocks and release gas stored inside. The BBC reported that environmentalists are against this process as there are concerns that the technique could cause small earth tremors, water contamination and environmental damage.

According to the government, research from the Institute of Directors has shown that investment in shale gas could reach GBP3.7bn per year, which represents a huge economic opportunity for the UK and would support 74,000 jobs in the oil, gas, construction, engineering and chemicals sectors. Energy company Centrica is expected to make an investment of up to GBP160m in shale gas projects in the Bowland shale, while French utility company GDF Suez has declared a GBP25m investment for several shale gas and coal-bed methane projects in Cheshire and the East Midlands. Further new entrants to the market are expected later this year, with the 14th onshore licensing round.

Prime Minister David Cameron said:

A key part of our long-term economic plan to secure Britain’s future is to back businesses with better infrastructure. That’s why we’re going all out for shale. It will mean more jobs and opportunities for people, and economic security for our country.

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