Last Wednesday, UK Chancellor of the Exchequer Jeremy Hunt announced that the windfall tax on UK oil and gas firms will remain in place for another five years, until March 2029. The levy, which has already driven away investment and reduced production in the North Sea, was previously set to end in 2028.
As EID has previously explained, the windfall tax (formally known as the energy profit levy) was introduced in May 2022 and increased from its initial 25 percent to 35 percent in November 2022.
Of the extension, Hunt said:
“Because the increase in energy prices caused by the Ukraine war is expected to last longer, so too will the sector’s windfall profits – so I will extend the sunset on the Energy Profits Levy for an additional year to 2029, raising £1.5bn.”
Several Scottish politicians have decried the decision, emphasising the detrimental impact it will have on the industry. Leader of the Scottish Conservatives, Douglas Ross, expressed his frustration, saying:
“I’m not going to hide my disappointment in the fact I urged the chancellor not to extend the windfall levy but that decision was taken to continue for it for a further year. I think that’s the wrong choice, I think the chancellor took the wrong decision there. I made it clear to him that I won’t support that when a bill that will be required in the House of Commons comes back.”
The day before the extension was announced, Ross told a BBC Scotland political programme that he had been lobbying both the chancellor and the Prime Minister on the issue. He further explained:
“I’ve said it privately to the chancellor, to the prime minister, to senior ministers and I’m saying it publicly. I’m not trying to in any way run away from this. What we need for oil and gas companies is certainty going forward. A further extension doesn’t provide that certainty.” (emphasis added)
However, a windfall tax directly hinders this certainty and threatens jobs, investment, market stability, and growth, a fact reiterated by Industry body Offshore Energies UK CEO David Whitehouse:
“We are extremely disappointed that the government continues to ignore clear evidence that we need investment in offshore energy production to grow the economy and achieve net zero. We have identified £200 billion of investment in oil and gas and the UK’s wider energy transition awaiting the green light which will not happen with such globally uncompetitive taxation in place. Thousands of jobs and billions of pounds in national revenue are at risk because of the destabilising impact of these tax decisions. A homegrown energy transition will simply not move forward unless business confidence for long term investment in the UK is restored.” (emphasis added)
The Aberdeen & Grampian Chamber of Commerce also criticised the extension with policy director Ryan Crighton saying:
“We need investment in new North Sea oil and gas fields to maintain jobs and offset declining production. Without that investment, production could halve by 2030, which places thousands – perhaps tens of thousands – of jobs at risk. We are already seeing investors walking away from deals – with some showing open dissent towards the UK – and if that gathers pace, then the 1,000 jobs we have already lost to the windfall tax could be a drop in the ocean compared to what is to come.”
Prior to the extension being announced, analysis by EY show that Aberdeen had the slowest growing economy in the UK. EY’s report stated that the lack of growth could be at least partially contributed to the windfall tax, saying:
“This is likely explained by challenges in the oil and gas sector, upon which Aberdeen’s economy is heavily reliant, including the long-term decline in North Sea oil production…policy has played a part — the Scottish government is ambivalent around new investment in oil and gas production, and whilst the UK government is warmer to the idea, the imposition of significant windfall taxes has also acted as a barrier to investment.” (emphasis added)
Bottom line: The UK’s extension of the windfall tax will cause even more uncertainty for the North Sea oil and gas industry, potentially causing a further decrease in investment and more job losses – further showing how taxes like these cause the most hurt for local communities.
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