Shale gale keeps blowing

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David Cameron has confirmed that the Government is ‘going all out for shale’, on a site visit in the Gainsborough Trough area of Lincolnshire, in which the BBC has announced that Total is investing around £12 million as the first oil major to commit to UK fracking.

Business Rates Boost

The Prime Minster has also confirmed that the Business Rates Retention scheme in force since April 2013 (which enables authorities to retain 50% of the uplift in business rates from development they authorise) will apply to shale projects at a full 100% rate.  The policy would implement one of the recommendations from the influential May 2013 Institute of Directors report on the economic benefits from shale development in the UK and barriers to delivering it.

shaleThe IoD report envisaged a potential £3.7bn investment in UK shale and the Government is now looking to use the Business Rates regime to channel some of this locally to overcome public resistance to fracking.

The benefits for a 12-well site could be worth up to £1.7 million to the local authority responsible for collecting rates – 140% of East Lindsey District Council’s  total Environment budget or 100% of its 2013-14 budget cuts

Critics will point to the reported cost of policing Cuadrilla’s Balcombe operations last summer and uncertainties about how (and when) rates valuations will take place.

Community Benefits Still in Doubt

The missing link in the community benefits remains the lack of a clear mechanism for getting these resources down to the level where they will deliver tangible benefits and persuade local people that development can bring worthwhile investment – see our blogs on Community Interest Companies (CICs). Business Rates Retention will not benefit the (County) Minerals Planning Authorities who will determine fracking applications.  The clouding of roles feared by some is therefore unlikely to arise in practice but the money will not be a ‘Local Finance Consideration‘ for planning approval purposes unless the local authority commits itself to spending the retained rates on something with a clear planning relationship to the fracking project.

Where decision-making is co-ordinated in this way, there are some real benefits to weigh in the planning balance. It would be possible for the Government to structure the Business Rates Retention amendments so that the extra 50% (or a part of it) must be passed to a CIC or Neighbourhood Planning body (i.e. a Parish Council or Neighbourhood Forum).

Community Funds

The UK Onshore Operators’ Group has now launched its proposals for securing community benefits, which will rely on the national charitable trust UK Community Foundations to deliver £100,000 for local benefits where planning consent is granted and exploratory drilling starts.  Local priorities will be set following consultation and a local panel will be appointed to decide how the funds are spent.  It is good to see the model for local benefits being worked up, but it remains to be seen how the 1% of profits promised by the UKOOG and Government will be calculated and paid and whether the use of a national charity structure will give the level of flexibility that CICs could offer, in using community benefits to go beyond mitigation projects to wider not-for-profit and social enterprise roles.