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Viewpoint - 09/05/2014

Fracking: carrot deployed. Government readies stick.

The fracking debate shows no signs of abating, and many commentators sense a polarisation of views. The government’s position appears clear, with the Prime Minister recently announcing that his administration is “going all out for shale”.

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The Chancellor is already employing the business rates regime as part of a package of incentives to ensure that local communities have the opportunity to share in the financial benefits which shale gas can bring to the economy. Furthermore, the rate of duty on shale gas has been lowered to incentivise exploration companies, and those companies are negotiating with local authorities to ensure that a proportion of the financial upside feeds through to local communities.

Temptation to top-up local finances

At a time when the Local Government Association reports that councils are facing a £500m shortfall in forecast business rates receipts as a result of defaults, appeals, low growth and the Localism Act’s ‘rates retention’ process, a long-term and predictable flow of income from the fracking industry must be a temptation. Tripartite negotiations are continuing apace.

Yet landowners have raised the law of trespass as the most recent tactic in their efforts to slow or even halt the process of exploratory well-drilling. Unlike in the USA, landowners in the UK have limited rights to the value stored beneath their property, and so are seeking to delay exploration either for environmental reasons or perhaps as a negotiating ploy.

In similar vein, ransom strip prospectors are buying up small parcels of land in order to halt exploration or participate in the power struggle for financial gain.

To the detriment of local economies?

Thus far, the government has laid its policy foundations, with the growth in business rates receipts from shale gas exploration expected to play a significant role in energising local economies. The question is ‘how long will landowners hold-out, when each passing day is to the detriment of the of the economic vibrancy of local economies?’

The Prime Minister, no doubt with one eye on the UK’s increasingly strained relationship with Moscow, has made a clear commitment to shale gas as an unencumbered local source of energy in the future. He may be in no mood for protracted delays, and has a number of alternative strategies at this disposal. These include the treatment of shale gas exploration as an NSIP (Nationally Significant Infrastructure Project) causing key planning decisions to fall under the direct decision-making remit of the Secretary of State. He may also be considering a change to the Law of Trespass to ensure that drilling and extraction can proceed without undue delay.

Carrot and stick in equal measure

Shale gas exploration represents a new opportunity for the UK economy. Though negotiations are at an early stage, the government has laid the foundations to ensure that the industry will be safe, environmentally-friendly and ready to contribute significantly to local economies. It represents an opportunity which ought to be exploited to the full. Whether the government will stand back and allow landowners to delay progress, or take matters into its own hands, remains to be seen.


This article is part of the spring 2014 edition of Rating in Brief.

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