Britain’s energy profits levy is ‘destroying’ the country’s North Sea oil industry, while undermining energy security and the economy, analysts have warned.
The so-called windfall tax was implemented in May 2022 in response to soaring energy prices in the wake of Russia’s invasion of Ukraine.
Initially introduced as a temporary tax on the profits of oil and gas companies operating in the UK, the EPL is currently a 38 per cent levy on top of existing taxes, bringing the headline rate for producers to 78 per cent.
The impact has been to see a collapse in North Sea investment, according to analysts at Stifel, and a sharp fall in the Treasury’s total tax take as a result.
This has been exacerbated by a sharp fall in energy costs, with oil prices now down 50 per cent since the invasion of Ukraine in 2022 and gas prices 80 per cent below their post-invasion peak.
Stifel estimates the ‘self-defeating’ tax will cost the Treasury £3billion in tax receipts between 2025 and 2030.
The broker wrote in a note: ‘The UK North Sea ‘windfall’ tax has not raised the additional revenue that was expected because there has not been a windfall to tax.
‘The UK North Sea industry is being destroyed by taxes that are too high, taxes which threaten energy security, jobs, investment and economic growth.
‘The impact of lower investment and production is already being felt through job losses, lower tax receipts, and more energy imports.’
Broker estimates the windfall tax hit to production will cost HM Treasury £3bn by 20230
Reliance on overseas oil and gas imports not only hurt’s the country’s national security, Stifel added, it threatens the UK’s carbon reduction goals.
Stifel wrote: ‘Without the UK North Sea, total CO2 emissions from the UK’s energy mix would be higher, with UK exporting its carbon emissions (along with jobs and investment) to energy producers like Norway and the US.
‘While shutting down the North Sea energy industry would make the UK’s own emissions look better, this is merely because higher emissions are being produced elsewhere, outside the UK.’
The broker called for the removal of the windfall tax.
It estimates doing so will ‘stimulate a recovery in investment in the UK North Sea’, leading to an overall higher tax take across the next five years.
The move would also remove a threat to jobs, and ‘improve the UK’s domestic security of energy supply at a time of rising global uncertainty’.
Stifel added: ‘It’s time for Energy Pragmatism.’
