The U.K.’s new chancellor, Rachell Reeves, recently announced that the windfall tax (formally known as the Energy Profits Levy) will be increased to 38 percent (up from 35 percent) on November 1, bringing the rate of tax on upstream oil and gas activities to 78 percent. The tax will also be extended to 31 March 2030 and the government stated that it would remove certain so-called ‘unjustifiably generous investment allowances’ from the EPL.
Energy in Depth has discussed in detail the harm that the windfall tax has brought to U.K. industry. Companies in the North Sea criticized the lack of industry consultation on the decision, saying the announcement was rushed out and that such tax changes singled out the sector despite a lack of windfall conditions.
David Whitehouse, Chief Executive of Offshores Energies responded strongly, saying:
“This is not partnership working between government and industry. These announcements have been made without meaningful engagement with this sector. We recognize the Government has significant spending challenges to manage but today’s announcement will only serve to rock confidence further.
The offshore energy sector supports over 200,000 jobs. These are real people, working in our energy industry today. Today’s announcement jeopardizes jobs in communities across the U.K. This is something the Prime Minister committed in his manifesto not to do.
Announcements like this without engagement is no way to treat these hard-working people.”
Russell Borthwick, Chief Executive of the Aberdeen and Grampian Chamber of Commerce, warned about potential widespread damage, saying:
“This decision is reckless, wrong and economically ruinous for the North Sea and ignores the explicit warnings of industry, investors and unions. The Chancellor should be on the next flight to Aberdeen and meet with the companies who will be pulling investment from the UK and the workforce who will be extremely worried for their future.
The new government is pushing the North Sea dangerously close to ‘game over’ territory and this will, in turn, put our energy transition and security at risk. Instead of seeing the energy sector as the solution to challenges in the U.K.’s public finances, the chancellor has taken the wrongheaded decision to tax the industry into oblivion.
“The consequence of that will be £20 billion lost in revenues to the Treasury, greater reliance upon imported oil and gas — worse for the planet and the economy — and tens of thousands of jobs across the U.K. placed in jeopardy. Confidence in the UK continental shelf is already at rock bottom. Unless the U.K. government rolls back from this position on the energy profits levy then we’re facing the destruction of industry on a scale not seen in over 30 years.”
Panmure Gordon director and oil and gas research analyst Ashley Kelty also warned that the changes to the windfall tax could hasten the demise of the North Sea saying:
“While the virtue signaling points raised will be significant, the clear takeaway is that the new government has zero understanding of the energy transition, energy security or markets. The irony is that this policy will mean that the ‘hard working people’ of the UK will face both higher energy bills and taxes to pay for the expensive renewables promised and the vast amounts of imported fuels needed, whilst also increasing the risk of blackouts and fuel shortages.
The net cost to the U.K. will also be higher as this move will accelerate decommissioning of fields in the North Sea with the tax credits granted for that far outweighing any revenues generated by the higher EPL.”
Opposition political parties also spoke out strongly against the policy with Conservative shadow energy minister and West Aberdeenshire and Kincardine MP Andrew Bowie saying:
“Tens of thousands of Scots, whose jobs are now hanging in the balance, will wonder what they have done to Labour to justify this supertax on North Sea oil and gas. To label the careful balance involved in driving net zero, while keeping the lights on, as ‘unjustifiably generous’, is a kick in the teeth for the North East. Labour have decided on harsh and unfounded sanctions for the industry, and will have to bear the responsibility of what happens from now on.”
Bottom line: The announced increase to the U.K.’s windfall tax has been condemned by stakeholders across the industry and is expected to have a significant negative impact on jobs, communities, and the viability of the sector in the North Sea. By announcing this increase, the Labour party singles out the oil and gas industry, ignoring its vital importance to the United Kingdom.
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