North Sea industry slams reported move to raise UK windfall tax

 The UK North Sea oil and gas industry has slammed reports that the government is considering increasing a windfall tax on profits, warning that the move will endanger investment and leave the country more reliant on imported energy.

Local media has reported in recent days that finance minister Jeremy Hunt is considering a plan to raise the windfall tax from 25 to 35% of oil and gas producers' profits, while also applying it to electricity generators as well and extending its duration by three years until 2028. It is estimated that the move would bring in an extra £45bn ($53bn) for the budget.

The government is under pressure to balance its books as the Bank of England warns that the country is headed for its longest recession since records began a century ago. Under new prime minister Rishi Sunak, Hunt is due to announce a budget on November 17 that will involve tax rises and spending cuts, and will reportedly include the increase in the energy windfall tax.

Industry association Offshore Energies UK (OEUK) responded that "oil and gas companies risk being driven out of investing in UK waters if ... Hunt ... carries out threats trailed in the media."

“The UK’s oil and gas producers were already paying an effective tax rate of 40% – the highest rate of any industrial sector – on the profits from oil and gas production, before the additional 25% windfall tax was imposed earlier this year,” OEUK said. “It means they are already now paying a 65% tax rate.”

A further 10% hike would therefore bring the total to 75% – " a rate so high that many oil and gas producers would have to reconsider investment plans worth billions," the association said.

The existing windfall tax notably does allow companies to deduct some investments they make from their tax base.

“OEUK has told Mr Hunt that its members are proud to pay their taxes but long-term fiscal stability and intelligence taxation were essential to the future of an industry that plans and invests over years and decades,” it said. “It has also warned that a reduction in investment would soon translate directly into reduced UK production of gas and oil, damaging jobs, undermining the UK’s energy security and driving up imports.”

The increase would also endanger UK efforts to reach net zero by 2050, by depriving the oil and gas industry of funds they can use to invest in low-carbon technologies.

"Driving investment out of UK waters into other countries will increase reliance on imported energy, reduce the tax flow to the Exchequer and make it even harder to increase our domestic production of lower-carbon energies,” OEUK said. “We need a diverse range of offshore operators and supply chain companies with the skills and people to build the low-carbon energy future we all want to see. It deeply concerns us that the complexity of the UK offshore energy sector is not being considered when we are on the cusp of such an important transition."

The Association of British Independent Exploration Companies (BRINDEX) has similarly criticised the move, telling Hunt in a letter that the “UK is now one of the most fiscally unstable and complex regimes for oil and gas companies.”

“Windfall taxes create fiscal shock and uncertainty which, for investors, make the basin riskier, harder to predict and which negatively impact on decisions to invest in the UK,” BRINDEX continued. “Windfall taxes may deliver increased short-term revenues but they negatively impact longer-term energy security and the appetite and financial ability to deliver on the energy transition.”

The UK is “already high-risk, high-cost and technically challenging” because of its maturity and geology, which has meant that investment is becoming “increasingly more difficult” compared with other countries, the association said.