Chancellor of the Exchequer Jeremy Hunt raised overall taxes on UK oil and gas production to 75 per cent from the already increased 65 per cent and the Treasury has introduced a new 45 per cent levy on electricity generators from 1 January 2023, including offshore wind.
OEUK believes the tax changes would impact North Sea operators as well as the hundreds of companies in the UK supply chains, which will face cutbacks or be driven abroad if investment declines.
The trade body notes that the offshore sector has long been the UK’s most highly taxed industry and was paying 40 per cent tax on oil and gas production even before the windfall tax was imposed in May. Since then, it has been paying 65 per cent and the latest rise takes the overall tax rate to 75 per cent from 2023.
This implies that the total taken out of the UK industry between now and 2028 will amount to £80 billion, including £15 billion this fiscal year and £20 billion the year after, Treasury documents say.
Chancellor Hunt also extended the duration of the windfall tax, technically known as the Energy Profits Levy, so that it will end in March 2028 and not in December 2025. Crucially, he warned that it would remain in place even if oil and gas prices fall, as widely expected, meaning the UK offshore sector faces some of the world’s highest taxes.
Deirdre Michie, OEUK’s Chief Executive, said that these are tough times for consumers as they are being hit by surging global energy prices and the economic fallout from political failures in the UK, adding that when such hardship occurs it is right for all sectors to play their part, but a there is a balance to be struck.
“We remain proud to pay our taxes, but this latest increase means UK offshore operators will be paying a total rate of 75%. This rate is so high that it threatens to drive investment out of the UK altogether. The extension to 2028 takes no account of the likelihood of prices falling in that time,” said Michie.
“It’s also worrying that we are increasing taxes on low-carbon electricity generation like offshore wind. But it’s not just the rate that is so damaging. It’s also the disruption and uncertainty generated by constant changes to our tax system.”
The UK gets three-quarters of its total energy from oil and gas and such reliance means security of supply is essential, OEUK notes, adding it has long argued that the best way to protect the UK from global shortages is to produce as much as it needs from its own waters. Despite that the UK cannot produce all its own oil and gas, what it does produce acts as a “vital buffer” against global shortages.
Although the industry is participating in plans to invest £200 billion by 2030 across all energies, including the lower-carbon ones needed to drive the energy transition, this recent budget announcement, warned OEUK, means much of that investment could dry up. If it does then oil and gas production will plummet so fast that by 2030 the UK could be forced to import up to 80 per cent of its gas – double the current level.
OEUK notes that such tax changes and political turbulence also risk undermining the UK government’s plans to make it carbon-neutral by 2050, meaning net-zero will only happen if there is long-term agreement and consensus.
The UK trade body did, however, welcome news that the government would undertake a long-term review of the long-term tax treatment of UK oil and gas production.
“No industry can invest or plan without knowing what kinds of tax regime will be in place. We want to work with the government to build a long-term tax regime that will let us play a full role in the energy transition,” Michie concluded.
“Unlike politicians, energy companies think and invest in terms of decades – not election cycles. That approach means we have built a stable, strong and prosperous industry which has supported the nation for 50 years. We’re now planning for the next 50 years, and we want to work with our politicians to do the same.”