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Windfall tax uncertainty ‘driving investment away’

Windfall tax uncertainty ‘driving investment away’

 

Oil and gas leaders are calling for a meeting with the Chancellor to warn that a new windfall tax will drive investors away from the UK.

Deirdre Michie, chief executive of Offshore Energies UK, has written to Jeremy Hunt stating ahead of the 17 November Budget stating that the “ongoing uncertainty” around the energy profit levy means overseas headquartered companies are unable to make long term plans.

She says “fiscal stability drives investment into the North Sea and fiscal uncertainty drives investment away from it.”

Her letter comes as BP became the latest oil and gas major to report bumper profits amid growing pressure from Opposition political parties to introduce a further windfall tax to help consumers and businesses cope with high energy bills.

BP says it expects to pay $2.5 billion in tax on its UK North Sea operations this year, including $800 million because of the windfall profits levy.

The company disclosed the figures yesterday as it sought to head off calls for tougher windfall taxes, despite reporting a doubling of global third-quarter profits to $8.2 billion.

Its underlying net profits for the year to date stand at $22.8 billion and it disclosed that about 15% of its global profits were made in Britain. The 25% energy profits levy on North Sea oil and gas profits was imposed in May by Rishi Sunak during his latter weeks as Chancellor. The windfall tax raised the effective tax rate in the North Sea from 40% to 65%.

The government is looking to lift the levy to 30% and extend its application from 2025 to 2028.

Ms Michie points out that gas prices are “reverting to more traditional seasonal norms” reflecting improved market conditions and that supporting healthy domestic production will continue to provide energy security.

She says the new prices have also helped underpin a “favourable spread between UK and Continental gas prices prices this summer, contributing to energy affordability”.

Ms Michie argues the industry’s case that big profits are needed in order to invest in the transition to clean technologies.

“Our sector remains committed to being a responsible energy partner which will best be achieved through a fiscal and regulatory regime that allows us to invest long term to ensure we can deliver UK energy in as clean a way as possible,” she writes.

“For the industry to be sustained, investment by smaller independent companies is desperately required in addition to that of the established majors.

“Generating sufficient profits from existing assets is critical for companies to continue to progress
opportunities and develop new fields needed to enhance security of supply.

“It is vital that HM Treasury offers industry and investors fiscal predictability and regulatory certainty to secure investment in the UK in low carbon energy.

“In the race to net-zero in 2050, the UK must be seen as a globally competitive market able to attract inflows of capital to maximise our domestic resources and anchor our world leading supply chain in the UK. We need a long-term approach and engagement from government if we are to build a secure, affordable, low carbon energy market in the UK.”

Read the latest issue of the OGV Energy magazine HERE

Published: 02-11-2022

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