NORTH Sea oil and gas firms are expected to invest another £2 billion in the area and create thousands more jobs after the UK Government offered tax breaks that will encourage them to revamp older fields.

Chancellor George Osborne bowed to calls for him to offer incentives to invest in "brown" fields by introducing allowances that will lead to big reductions in the tax firms pay on output from qualifying assets.

Industry leaders said the measure could lead to firms producing another 150 million barrels of oil, the tax on which will provide a massive boost to the Treasury in the long term.

A number of projects have already been identified which are now likely to go ahead. They would not have proceeded under the old regime.

Oil & Gas UK estimates there will be an additional £2bn investment, on top of the £31bn that oil and gas firms already planned to invest in the North Sea to capitalise on booming demand in countries like China.

The industry body said the measure will create many thousands of high skilled jobs, and could help to extend the life of some fields and the associated production infrastructure like platforms for years.

Around ten fields may qualify for the allowance in the near term.

"This initiative will have an immediate impact in that it will help to promote investment and sustain production from many mature fields, enabling more oil and gas to be recovered from them and postponing decomissioning by a number of years," said Mike Tholen, Oil & Gas UK's economics and commercial director.

The concession may help the Chancellor draw a line under the furore provoked by his decision to hike the tax rate payable on North Sea profits by 12 percentage points in the 2011 Budget.

Industry leaders warned firms might slash investment in the North Sea in response. Mr Osborne has offered a series of concessions since then, including reliefs to encourage investment west of Shetland and in small fields.

Oil & Gas UK said the latest move provided a strong signal of the government's commitment to make the most of the UK's oil and gas resources.

The head of Talisman Energy's UK business, Geoff Holmes, praised the Treasury for maintaining a high level of dialogue with the industry.

He said the new allowance makes it much more likely the Canadian company will sanction the £1.6bn redevelopment of the Montrose area fields, which is expected to create 2000 jobs.

The Treasury said the long-term tax revenues generated as a result of Brown Field allowance should "significantly outweigh" the initial cost, of around £100m a year.

But increased activity will pose challenges for an industry which is suffering from skills shortages.

On Tuesday, PwC said Aberdeen needs to recruit 120,000 skilled workers by 2022.

The new allowance will allow firms to shield up to £250m of income in qualifying projects from the 32% Supplementary Charge rate applied to North Sea profits.

Firms can shield £500m income from fields which were given consent before 16 March 1993, on which they pay Petroleum Revenue Tax.