The UK government plans to increase a special tax levied on the profits of oil and gas companies, known as the Energy Profits Levy-often called the “windfall tax.” It is expected to rise to 38% from 35% on November 1st. That will mean energy companies working in the UK will pay even more taxes on their profits. They already pay 30% corporation tax apart from an additional 10% rate. This will increase to 78% once the new tax rate is levied on such companies.

Windfall Tax :
The windfall tax was introduced in May 2022, with the objective to tame the increasing energy cost burden on households. The philosophy behind this tax was that the giant energy companies that enjoyed super profits due to high oil and gas prices must pay higher taxes. The additional revenue thus collected went toward the subsidy to be provided to people on their energy bills. However, raising this tax further, according to the trade group of the energy sector known as Offshore Energies UK, will be damaging for the country’s economy.

Fears of Falling Investments and Job Losses
OEUK said increasing the windfall tax will make energy companies more cautious when it comes to investing in the UK. They believe that this may lead to the loss of around £13 billion in the UK economy from 2025 through 2029. The group also warns that 35,000 jobs could be at risk. They feel that if companies are forced to pay more in taxes, they will invest less money in new projects, including ones involving green energy. According to OEUK, investment in the sector could fall sharply from £14 billion to just £2 billion by 2029 if the tax increase goes ahead.

Government’s Plan and Industry Reaction
It does not stop there; it plans to extend the tax until 2030, too. Besides increasing it and extending the life of the tax, it also plans to make investment allowances more difficult-almost choking, actually-those reduce companies’ taxes. Current allowances mean that if companies invest in projects like wind farms or other renewable energy projects off the North Sea, they pay less in tax.

David Whitehouse, Chief Executive at OEUK, said: “This government says that economic growth is its number one priority, but our analysis shows this new tax policy will actually make the energy industry contribute less to the UK economy.”

A Knock to Business Confidence
It is not just the energy companies that are concerned. Other businesses, too, are feeling less confident about the future. The Institute of Directors, one of the major business groups, says that recent talks of raising taxes and changing employment rights have hurt confidence in the UK as a place to do business. In its last survey, optimism among business leaders fell sharply in August after reaching a three-year high in July.

Anna Leach, IoD chief economist, said, “It is disappointing to see positive mood among business leaders turn so quickly.” She also added, “Plans for investment in the coming year drop by the greatest amount since the beginning of the COVID-19 pandemic”. Expectations for revenue and hiring have fallen as well.

A Call for Stable Policies
Leach and his fellow business leaders urged the government to give more time, and a ‘serious’ thought to think how these changes in tax will affect the long-term health of businesses in the UK. They require a ‘stable tax and policy environment in which we can invest and grow’.
A Mixed Bag for the Economy
Yet, another report from the Confederation of British Industry, a separate report, indicated that some areas were performing better than others. A private sector firms surveyed by the CBI Growth Indicator between November 30 and December 20 expected a slight rise in activity over the next three months. However, Alpesh Paleja, interim deputy chief economist at the CBI, said that the economy was a “mixed picture”. He said though some businesses such as retail were still showing struggle, there was certainly “bright lights” in other areas:.

Paleja added, “Ahead of the budget on October 30th, businesses want to see policies that can help turn this mixed outlook into a much more positive one.” He said that lowering costs to businesses-for instance, through reforming business rates or setting out a clear tax roadmap-could make all the difference.

Looking Ahead: What’s Next?
The government has defended the move to increase windfall tax, promising to continue talking with the oil and gas industry such that the rise in the tax is implemented fairly. A Treasury spokesperson said, “We are committed to having a constructive dialogue with the oil and gas sector to make sure this tax increase happens smoothly and responsibly.”

The government also said it intended to start creating a new National Wealth Fund and “Great British Energy,” schemes that would create thousands of jobs for the industries of the future. For now, however, many in the energy industry and beyond worry this proposed tax increase could cost jobs and hurt economic growth.

Final Thoughts
With the UK’s next budget announcement scheduled for October, all eyes will be on how these changes take their toll on businesses, jobs, and the wider economy. Will the hikes in taxation cause more harm than good? Only time will tell, but for now, it certainly seems like a lot of people will hold their breath, hoping for the best and preparing for the worst.