SHALE GAS exploration in the United Kingdom, which may include significant reserves in Northern Ireland, is to be encouraged by a special low-tax regime – far below the taxes paid by North Sea oil companies – under plans put forward yesterday by chancellor of the exchequer George Osborne.

Speaking to the Conservative Party conference in Birmingham, Mr Osborne said exploiting shale gas reserves, which can only be exploited by breaking apart rock formations deep underground by the high-pressure injection of water, sand and chemicals, was necessary.

The treasury, he said, was consulting on a “generous tax regime” so that Britain was not left behind as gas prices tumbled in the United States. Shale gas is seen by its supporters in the US as offering potential to end the dependence on the Middle East.

However, the extraction of the gas using “fracking” is highly controversial, with opponents arguing that it threatens to poison underground aquifers, increase the UK’s carbon dioxide emissions and leave a toxic legacy after the gas is removed that will take decades to manage.

Last night the treasury could not say when the consultation would end, but Mr Osborne’s spokesman said the likely taxes on developers – who are faced with significant investment before hope of profits – should be far lower than those levied on North Sea oil, where older fields pay an 80 per cent surcharge tax and 70 per cent on newer ones.

Currently, tests in Lancashire have been suspended after test-drills provoked small tremors near Blackpool, though the secretary of state for energy and climate change, Liberal Democrat Ed Davey, said yesterday he hoped to be able to lift the suspension order.

Opinion is divided on the size of the UK’s shale gas reserves. The British Geological Survey has put the store at 5.3 billion cubic feet – 18 months worth of UK consumption – though Caudrilla Resources, the company that wants to resume test-drilling in Lancashire, believes it to be many times larger, putting the figure at 200 trillion cubic feet.

The UK was a net gas exporter up to eight years ago, but production in the North Sea has steadily declined since.

Last night the treasury said gas would remain an important part of the UK’s energy needs, despite the focus on renewable energy.

“A successful UK shale gas industry has the potential to create jobs and support UK energy security, benefiting the economy and taxpayers.”

Separately, Mr Osborne announced workers would be asked to cede some of their employment rights, including the right to challenge dismissals and redundancy payments, in return for shares in their firms, which would then not be subject to capital gains tax when sold later on.

Describing the move as creating a generation of “employee-owners”, the measure, which was warmly greeted at the conference, will be optional for existing employees but new start-ups will be able to make such contracts mandatory. It will be in place by next April.

Workers can receive shares worth between £2,000 and £50,000. Capital gains tax will not be payable on them later “even if it turns out that they joined the new Facebook. We see this helping new start-ups particularly, offering the kind of flexibility they need”, said the treasury. Some employment rights would remain under such contracts, including the right to the minimum wage or better, and freedom to refuse to work on Sundays.