Ritika Janiya
There is a plan underway by the UK to increase the windfall taxes of oil and gas profits from 75% to 78% in the white paper proposed by Chancellor Rishi Sunak. The energy sector shows palpable fear that such a move could plummet more than 200,000 jobs and a decline in investment in both traditional and renewable sources. They are making passionate appeals to the government to have a rethink on its intent.
The UK government is considering huge changes in oil and gas profit taxes. They wish to increase the windfall tax from 75% to 78% and keep it at high until 2030. They are also preparing to strip away some tax reliefs that help companies make investments in the industry. The thing has struck fear in the minds of a large number of people because the energy sector supports around 200,000 jobs spread across the country.
In an open letter recently written to the government, the grievances of 42 companies working on oil and gas, among others linked to these industries, were made known. They are quite worried that such tax changes will only bring a massive slowdown in investments that it will hurt businesses. For the most part, the said changes in the taxes for the country, considering such investments, mean much for its future.
This was in a letter written on behalf of Offshore Energies UK, a body representing companies in the offshore energy sector. It warns that those “proposed tax increases and the removal of tax allowances will have crushing impacts on jobs and the communities that rely on energy production.” These companies take another route to argue by saying that the oil and gas revenues are used to finance new renewable energy projects.
These companies need the steady flow of money that comes from oil and gas in order to fund work in new technologies, such as floating offshore wind and carbon capture. According to their logic, if the government makes the tax situation even more hostile, it could risk not only an oil and gas industry but also the investments in new energy technologies that rely on the profits from fossil fuels.
The Labour Party had outlined earlier in its manifesto the plan of the government to extend and increase the windfall taxes. However, the energy sector was hoping it would have an audience with the new government with regard to any such changes. It is hoping further to be considered in the government’s industrial strategy council so that it could argue its concerns and ideas.
David Whitehouse is chief executive of Offshore Energies UK. He said most of the companies signing the letter are smaller businesses. He said: “These are not the big energy companies that people often think about. They are the smaller firms that play a crucial role in the UK economy.”
If the direct tax is increased to 78%, it will match Norway. However, energy analysts say that is tenuous: Norway does have a stable tax regime, and offers outstanding investment terms—the big difference. The UK had already raised its oil and gas taxes twice during the period of the previous government: first to 65% and, finally, to 75%, when it was pressured by people’s dismay over the rising energy prices after Russia invaded Ukraine.
Last year, the UK’s largest oil and gas producer, Harbour Energy, revealed that it would lay off 350 jobs in the UK as a direct consequence of the tax changes. This illustrates how the tax hikes could affect employment in the industry.
A Treasury spokesperson expressed the view that the government was enhancing the windfall tax to secure oil and gas companies’ fair contributions to the country’s energy transition. And they also pointed to the new National Wealth Fund and Great British Energy, which they said would create hundreds of thousands of new jobs in emerging industries.
Chancellor Rachel Reeves said there was going to be an increase in taxes without a doubt when she announced the autumn Budget. But she also made a commitment that no such increase would occur in the case of “working people.” “This has left many industries guessing as to exactly where the tax increases will hit.”.
This level of uncertainty has troubled most sectors, according to Lucy Coutts, investment director at JM Finn. She said that there may be tax hikes for oil and gas companies or, worse, even for banks, which makes it very hard for businesses to plan ahead. So, everyone is anxiously waiting what decisions are taken in October and how that impacts their own industries.
In a few words, the energy sector is alarmed by a government intention to increase the windfall tax from the oil and gas profits, mostly because tax rates driven up and decrease in investment. The debate will go on as the government flushes out its strategy and prepares for the budget decisions ahead.
