LONDON--The U.K. government is introducing a new tax allowance for oil and gas fields in the North Sea to encourage more investment amid a wholesale review of the fiscal regime of the sector, which is facing higher costs and declining production, U.K. Chancellor of the Exchequer George Osborne said Wednesday.

The new allowance for ultra-high pressure high temperature oil and gas fields has the potential to attract 5 billion pounds ($8.3 billion) to GBP6 billion of new investment and could encourage exploration in the central North Sea, unlocking more costly barrels in technically challenging prospects, industry trade group Oil & Gas UK said.

The Maersk-operated Culzean field and BG Group PLC's (BG.LN) Jackdaw gas condensate projects, both of which are high pressure high temperature, could potentially benefit from the new allowance.

In recent years, the U.K. government has introduced a string of tax breaks, including brown field allowances and relief for dismantling old platforms in the sea, in efforts to stimulate investment in remaining reserves that are becoming more expensive and technically challenging to develop. The government also hopes the tax breaks will help to stem a more than decade-long decline in North Sea oil and gas production.

Mr Osborne said Scotland, where most of the offshore oil and gas fields are located, should be mindful of the declining nature of North Sea tax receipts as they prepare to vote in a Sept. 18 referendum on whether to become independent from the U.K.

In the last year alone, the Office for Budget Responsibility has revised down oil and gas revenues by GBP8 billion over the next five years, according to the budget.

"This is a reminder of how precarious the budget of an independent Scotland would be. These further downgrades in the tax receipts would leave an independent Scots with a shortfall of 1,000 pounds per person," he told parliament in his budget speech.

Production last year was better-than-expected at 1.43 million barrels of oil equivalent a day due to new developments and an increased focus on production efficiency. This is a far cry from the sector's peak of 4.5 million boe/day in 1999.

Write to Selina Williams at selina.williams@wsj.com

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