The British offshore industry will be “hit hard” by recent tax changes on oil and gas production, which threaten to drive out investors and drive up imports, leaving consumers increasingly exposed to global shortages, said the British body representing the oil and gas industry. offshore energy Offshore Energies UK (OEUK).
Chancellor of the Exchequer Jeremy Hunt increased overall taxes on oil and gas production in the UK 75 percent of the 65% already increased and the Treasury introduced a new tax of 45% on electricity producers from January 1, 2023, including offshore wind.
OEUK believes the tax changes would impact North Sea operators as well as the hundreds of businesses in UK supply chains, who will face cuts or be driven overseas if investment dwindles.
The trade body notes that the offshore sector has long been the UK’s highest taxed industry and was paying a 40% tax on oil and gas production even before the windfall tax was imposed in may. Since then it pays 65% and the latest increase brings the overall tax rate to 75% from 2023.
This implies that the total taken out of UK industry by 2028 will be £80bn, including £15bn this financial year and £20bn the following year, according to Treasury documents.
Chancellor Hunt also extended the duration of the exceptional taxtechnically known as the Energy Profits Levy, so it will end in March 2028, not December 2025. Crucially, he warned that it would stay in place even if oil and gas prices fall, as widely expected, meaning the UK offshore sector faces some of the highest taxes in the world.
Deirdre MichieChief Executive of OEUK, said consumers are going through a difficult time as they are affected by soaring global energy prices and the economic fallout from policy failures in the UK, adding that when such difficulties arise, it is right that all sectors play their part. , but there is a balance to be struck.
“We remain proud to pay our taxes, but this latest increase means UK offshore operators will pay a total rate of 75%. This rate is so high that it threatens to drive investment out of the UK altogether. The extension to 2028 does not take into account the likelihood of lower prices during this period,” said Michie.
“It is also worrying that we are increasing taxes on low-carbon electricity generation, such as offshore wind. But it’s not just the rate that’s so damaging. It is also the disruption and uncertainty generated by the constant changes in our tax system.
The UK derives three-quarters of its total energy from oil and gas and such reliance means security of supply is essential, OEUK notes, adding that it has long argued that the best way to protect the Kingdom United of the world’s shortages is to produce as much as it needs from its own waters. Although the UK cannot produce all of its oil and gas, what it produces acts as a “vital buffer” against global shortages.
Although the industry is part of plans to invest £200 billion by 2030 in all energies, including the low-carbon ones needed to drive the energy transition, this recent budget announcement, warned the ‘OEUK, means a lot of that investment could dry up. If so, oil and gas production will fall so rapidly that by 2030 the UK could be forced to import up to 80% of its gas, double the current level.
OEUK notes that these tax changes and political turmoil also risk undermining the UK government’s plans to make it carbon neutral by 2050, meaning net zero will only happen if there is agreement and consensus. long-term.
The UK trade body, however, welcomed news that the government would undertake a long-term review of the long-term tax treatment of oil and gas production in the UK.
“No industry can invest or plan without knowing what kinds of tax regimes will be in place. We want to work with the government to build a sustainable tax system that allows us to fully play our role in the energy transition,” Michie concluded.
“Unlike politicians, energy companies think and invest in terms of decades – not election cycles. This approach means we have built a stable, strong and thriving industry that has sustained the nation for 50 years. We are now planning for the next 50 years and we want to work with our politicians to do the same.
. changes tax UK on oil gas hit hard industry warn OEUK