Offshore Energies UK to ministers: Your £5 billion tax increase will drive energy investors out
New laws imposing £5 billion of new taxes on the UK’s offshore oil and gas operators risk driving away investors and undermining the nation’s future energy supplies, the industry’s leading trade body has warned.
The Energy Profits Levy Bill, which on Wednesday passed its final stages in the House of Lords, risks starving crucial North Sea projects of tens of billions of pounds of investment, said Offshore Energies UK, which represents 400 organizations involved in the sector.
Deirdre Michie, OEUK’s chief executive, said that she was disappointed that the levy had become law and urged ministers to work with the industry to minimize the damage done to it.
The UK’s oil and gas operators were already paying a 40% tax rate on profits from oil and gas production on the UK Continental Shelf. (UKCS). Under the new law, the UK’s offshore oil and gas operators must pay an additional 25% tax on UK oil and gas profits.
This means the combined rate of tax is now 65% - by far the highest tax rate faced by any business sector.
The UK’s offshore oil and gas industry underpins the nation's energy security, producing the equivalent of 38% of the nation's gas and 82% of its oil in 2021. It also supports about 200,000 jobs across the UK, from Shetland to Southampton with concentrations in East Anglia, Merseyside, Yorkshire and northeast England, the northeast of Scotland, Tayside and the Highlands and in Scotland’s Central Belt.
Michie said she recognized that surging energy bills meant an exceptionally tough year for consumers, so help was vital – but funding that help through sudden new taxes risked long-term damage to the UK’s businesses and its energy security.
She said: “Exploring for oil and gas and then bringing it to shore is inherently a risky and expensive business so our members need the UK’s fiscal rules and other regulations to be stable and predictable before they consider investing the hundreds of millions of pounds needed for such projects.
“We are actually very proud to pay our taxes and support the UK government and consumers, but we are already the UK’s most highly taxed industry, so when new taxes are introduced suddenly, like this one, it makes the UK look like a riskier place to invest.
“That raises the cost of borrowing and so discourages investment in new energy sources just when global events suggest the UK should be doing all it can to maximize its own energy sources.
“I would urge the government and our eventual new prime minister to work with us to do everything possible to reassure investors and minimize the impact of this enormous tax increase.”