UK oil and gas firms call for windfall tax to be scrapped by 2025

The UK’s windfall tax on energy firms should be scrapped or it will have a “detrimental impact” on investment in the domestic sector, a UK oil and gas body has said.

After months of mounting pressure from MPs and public bodies, then-Chancellor Rishi Sunak announced in May that millions of households would receive a £400 discount on their energy bills paid for by a £5bn tax on oil and gas giants.

But Offshore Energies UK (OEUK), which represents the sector in the UK, said it was concerned that the Energy Profits Levy (EPL) would dampen investment. This is despite the fact that fossil fuel firms have announced record profits in recent weeks, with BP reporting its biggest quarterly profit for 14 years earlier this month.

“Introducing a new tax so suddenly, and with relatively little consultation, risks destabilising investor confidence,” the body said.

“OEUK has warned that anything which risks reducing UK oil and gas production at this time will further increase reliance on imported energy while also undermining the ability of these companies to reinvest in cleaner energies.”

The EPL is predicted to raise £5bn in its first 12 months, on top of the £7.8bn from corporation taxes already expected in 2022/23 – although the latter is a charge faced by all businesses. OEUK argues that this gives the UK government an estimated £13.8bn towards its £15bn support package for consumers.

Recent analysis suggests that the price cap on energy bills could rise to above £5,000 per annum for the average household by next April.

With a new Prime Minister expected to be in place by 5 September, OEUK said it is “vital that the new Cabinet recognises the role the UK industry is playing in providing a home-grown supply of oil and gas at this moment of global tension and a cost of living crisis”.

Currently, the North Sea’s reserves are privatised, so any oil that is produced is priced according to the global markets and therefore does not contribute to the UK’s energy security.

OEUK called on PM candidates Rishi Sunak and Liz Truss to commit to removing the EPL by no later than the sunset clause of 2025.

It also wants the successful candidate to meet with the sector ahead of any Emergency Budget and further commitments towards a North Sea Transition Deal designed to lead the the UK’s oil and gas industry towards a zero-carbon future.

Jenny Stanning, OEUK’s director of external affairs, said: “People across the UK are facing a tough winter as the cost of living squeeze continues.  Leadership is about inspiring confidence in the future while delivering real security and certainty today.  This winter the new Prime Minister will need to balance helping households with protecting the nation’s long-term energy security.

“It means this will be a pivotal time for investment in energy, both for our nation’s energy security and to ensure we deliver on the UK’s net zero commitment by 2050. We are engaging with Liz Truss and Rishi Sunak, and their campaign teams, to ensure they recognise the vital part our sector will play in keeping the nation’s lights on and its homes warm during the difficult months ahead and the years to follow.”

OEUK represents 400 member organisations employing 200,000 people, 10,000 of them offshore, producing energy from oil, gas, and offshore wind. They produce, about 40 per cent of the UK’s gas supplies.

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