(Photo: Reuters)
(Photo: Reuters)

Britain's government will grant one of the world's most generous tax breaks for shale gas investments in a bid to drive production and create thousands of jobs for the economy.

UK Chancellor George Osborne revealed that those who invest and make a profit from shale gas in the future will only be taxed a fraction of the amount that the traditional oil and gas industry currently pays.

The new allowance pledges that the tax payable on income from shale production will only be at 30% while the regular oil and gas industry is currently taxed at 62%.

The draft bill is also subject to consultation for three months and is likely to enter the finance bill in 2014.

The Treasury confirmed that this would not be a temporary measure and that the tax breaks would last a lifetime.

"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," said Osborne in the UK Treasury statement.

"This new tax regime, which I want to make the most generous for shale in the world, will contribute to that."

Britain's Shale Gas Revolution

Shale gas is part of the unconventional gas sector and has been touted as a 'game-changer' by the International Energy Agency (IEA) after it transformed the US industry and drove down prices.

The energy source is extracted from reserves deep underground by using hydraulic fracturing, also known as fracking.

Fracking involves drilling holes deep into the ground and then using high-pressure liquid to fracture shale rocks to release gas trapped inside.

Last month, a report by the British Geological Survey (BGS) revealed that there are more British shale gas reserves than expected - a total of 1.3 trillion cubic feet underneath Yorkshire and Lancashire.

With a glut of proven reserves, energy minister Michael Fallon has revealed that the government is also creating a set of "robust regulations" to speed up shale gas developments.

"The government is creating the right framework to accelerate shale gas development in a responsible way," said Fallon.

A number of exploration firms are set to start drilling to see if any of the unconventional gas is extractable at commercial levels.