Fracking gets tax break

New planning guidance and benefits for communities are also announced to help drive exploration

The Chancellor George Osborne has unveiled tax breaks for controversial fracking in a bid to create the "most generous" regime for shale gas in the world.

A new shale gas allowance will more than halve the tax due on a proportion - which will be determined following consultation - of income from production in order to encourage exploration of the unconventional energy resource in the UK.

The backing from the Treasury comes after a recent report from the British Geological Survey revealed there was twice as much shale gas in the north of England as previously thought. Other areas of the country could potentially also be exploited for the gas.

Ministers believe the experience of the US, which has seen a shale gas boom, shows it could boost tax revenues, create jobs, reduce energy imports.

But opponents warn that the process for extracting shale gas, by hydraulically  fracturing rock with high-pressure liquid to release the gas, or "fracking", can cause earthquakes, pollute water supplies, blight the countryside and affect house prices.

Questions have been raised about how much of an impact efforts to develop home-grown shale resources will have on household energy bills, and environmental campaigners warn a new "dash for gas" will undermine efforts to develop clean energy, cut emissions and create jobs and growth.

The new tax regime, which is based on existing field allowances to back the development of technically or commercially challenging oil and gas resources, will reduce the tax on the income from shale production from 62% to 30%.

The government has also outlined measures to ensure that local communities will benefit from the development of shale, with £100,000 paid out for each well where fracking takes place. If the drilling proves to be commercially viable communities will receive 1% of revenues.

New planning guidance on shale gas is set to be published by the Communities Department as the government attempts to drive forward exploration.

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.

"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."

Greenpeace energy campaigner Lawrence Carter commented: "The Chancellor is telling anyone who will listen that UK shale gas is set to be an economic miracle, yet he's had to offer the industry sweetheart tax deals just to reassure them that fracking would be profitable.

“We're likely to see the industrialisation of tracts of the British countryside, gas flaring in the Home Counties and a steady stream of trucks carrying contaminated water down rural lanes."

Shadow energy minister Tom Greatrex said gas would remain an important part of the UK's energy mix and shale had the potential to help improve energy security if it could replace rapidly depleting North Sea reserves.

He said: "Announcing tax breaks before we know how much shale gas is actually recoverable, before anyone even has a licence to extract it, and before anyone even knows whether fracking needs tax incentives, makes no sense at all.

"Only by fully addressing legitimate environmental and safety concerns about fracking with robust regulation and comprehensive monitoring, will people have confidence that the exploration and possible extraction of shale gas is a safe and reliable source that can contribute to the UK's energy mix."

Corin Taylor, senior economic adviser at the Institute of Directors, said that shale gas had the potential to create “tens of thousands of jobs in the UK” and provide “secure, competitively-priced energy for British manufacturing”.

Taylor added: “Drilling and fracturing are tightly regulated, with sign-off needed from three government agencies and local authorities, together with strict environmental impact assessments and permits. The UK's offshore oil and gas safety regime is one of the best in the world, and the same will be true for shale gas.”