Department of Trade and Industry Press Notice 1
                                                 17 March 1998
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       JOHN BATTLE WELCOMES ABOLITION OF THE GAS LEVY AND
     CONSULTATION ON REFORM OF THE NORTH SEA FISCAL REGIME

Today's Budget proposal to abolish the gas levy with effect
from 1 April 1998 and to reduce the rate for 1997-98 by 25 per
cent, from four to three pence per therm, was welcomed by
Science, Energy and Industry Minister John Battle. 
Mr Battle also welcomed the Chancellor's announcement that
consultation will take place on reform of the North Sea fiscal
regime. 

He said:

"The Chancellor announced in his July 1997 Budget that the
Government proposed to cut the gas levy to zero, with full
effect from April 1998. We have now decided to implement this
by abolishing the levy from this April, with a backdated
reduction applying to the current year. I welcome abolition
because the levy distorts the market and means consumers
suffer through higher prices. 
"I also welcome the Chancellor's announcement that he will
consult on proposals for reform of the North Sea fiscal
regime. This will give those potentially affected ample
opportunity to give their views and ideas on specific options
and will continue the helpful dialogue between the oil
companies and Government." 

There is no additional cost to the Exchequer, beyond that
announced last July, from the decision announced today to
abolish the gas levy from April 1998 and to reduce the rate
for 1997-98. Together, they are estimated to cost 170 million
Pounds in 1998-99, 190 million Pounds in 1999-2000 and 180
million Pounds in 2000-01. These estimates are before allowing
for any impact on corporation tax receipts. 
Notes for Editors

1.   The gas levy applies principally to gas purchased from
offshore producers under certain contracts originally entered
into before July 1975. The cost to companies of gas under
these pre-July 1975 contracts has historically been
substantially less than the prevailing market price. Gas sold
under these contracts is not subject to petroleum revenue tax
(PRT) because the contracts were classified as "tax-exempt"
when PRT was introduced in 1975. Instead, under the Gas Levy
Act 1981, the purchaser of gas subject to the relevant
contracts has to pay a levy on every therm of such gas that
they purchase; some levy is also paid by a few producers, who
may also be subject to PRT on their leviable production. Since
1982-83 the rate of gas levy has been four pence per therm. 

2.   The purpose of the gas levy was to capture for the
Exchequer the bulk of the economic rent which would otherwise
accrue to the purchaser from buying this gas at below market
prices; however, current and expected future gas market prices
are relatively low and there is no longer any justification
for retaining the gas levy. The legislation required to give
effect to the reduction in the rate of gas levy for 1997-98
and its abolition from 1 April 1998 will be included in the
Finance Bill. 

3.   Centrica, the main payer of gas levy, has already passed
on to its domestic customers the benefit to it of the
reduction in the levy which was announced last July. 


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