The North Sea oil and gas sector has warned the UK government against imposing tougher windfall taxes in the upcoming autumn budget, cautioning that such a move could result in a £12bn loss in tax revenue and jeopardize 35,000 jobs.
Offshore Energies UK (OEUK), the industry’s trade association, has provided Treasury officials with a detailed analysis, illustrating the severe impact that potential changes to the tax regime could have on the sector’s anticipated investment over the latter half of this decade.
To influence decision-making ahead of the chancellor’s budget announcement in October, the OEUK has publicly released its findings. The organization argues that without careful consideration, the government’s approach could backfire, reducing the sector’s contribution to the economy.
When Labour took power, it did so with a commitment to tighten the windfall tax regime, which had been established by the previous administration under the energy profits levy. This included raising the headline tax rate by three percentage points to 78%.
Additionally, Labour vowed to eliminate the “loophole” that allowed oil and gas companies to offset their taxes through investment allowances.
Although the government has not explicitly proposed scrapping all investment allowances, the OEUK analysis assumes this scenario and reveals the potential consequences. The report indicates that increasing the windfall tax could paradoxically lead to a £12bn reduction in tax receipts, as it would stifle new investments in the sector. This, in turn, could trigger an overall economic loss of around £13bn.
Jobs And Investments At Risk
According to OEUK, this decline in investment could endanger 35,000 jobs and drastically reduce the forecasted production of new oil and gas in the UK by up to two-thirds.
David Whitehouse, the chief executive of OEUK, emphasized that the analysis demonstrates how the government’s plans could “trigger an accelerated decline of domestic production, and a corresponding reduction in taxes paid, jobs supported, and wider economic value generated.”
He added, “This is a government that has made economic growth its main priority, and yet our analysis shows that its policy will ultimately reduce this sector’s contribution to the UK economy.”
Labour intends to utilize the additional revenue from increased North Sea taxes to fund its ambitions to transform the UK into a green energy “superpower.” The party has set an ambitious goal of achieving a net-zero electricity system by 2030, a move that is expected to significantly reduce emissions and lower overall energy costs across Great Britain.
In a related issue, UK Steel, representing the steel-making industry, has reported that its members in Great Britain are paying up to 50% more for energy compared to their counterparts in France and Germany.
This disparity, which adds an estimated £37m to electricity costs, is largely attributed to the UK’s heavy reliance on gas. UK Steel has urged the government to address this imbalance by helping cover the costs associated with power networks and considering a shift of policy levies from electricity bills to gas bills, thereby making it more cost-effective for steelmakers to operate electric furnaces.
A Treasury spokesperson responded to these concerns, stating, “We are committed to maintaining a constructive dialogue with the oil and gas sector to finalize changes to strengthen the windfall tax, ensuring a phased and responsible transition for the North Sea.”
The spokesperson also highlighted the government’s plans for a new national wealth fund and Great British Energy, which are expected to “unlock investment and create thousands of new jobs in the industries of the future.”
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