An oil rig anchored at the Cromarty Firth, Invergordon (Jane Barlow/PA) (PA Wire)
Rishi Sunak has been warned that an unexpected tax on energy firms would see higher prices and cause long-term damage to the oil and gas industry.
Offshore Energy UK (OEUK), which represents the offshore oil and gas industry, has issued the warning amid speculation that the chancellor is set to introduce a one-time tax on energy companies’ profits.
The body’s chief executive Deirdre Michi said: “This is an industry that thinks and plans for the long term, so sudden new costs, like this proposed tax, will hinder planning and investment and, above all, undermine investor confidence.” “
OEUK Chief Executive Deirdre Michi
Energy companies’ profits have been boosted by a surge in oil and gas prices in the wake of Russia’s invasion of Ukraine.
Critics have argued that energy firms are benefiting from the spike beyond their control and that for up to a year, a one-time levy on their profits could help support squeezed households.
But Ms Mitchie said it is already the country’s highest-tax industry, paying 40% on its offshore profits, and the operator will send £7.8 billion to the Treasury this fiscal year. That said, it was equal to £279 per family.
He said the industry was “very proud to have actually paid our taxes” but warned “the problem is when new taxes are imposed suddenly and without consultation”.
“The UK offshore industry needs a stable and predictable regime. An unexpected tax may not affect projects already underway – but is likely to stifle the investment in question, for which funding has not yet been committed,” she said.
“The result will be a decline in oil and gas production in the coming years – right at the time when the UK will need reliable sources of energy the most.”
Mr Sunak told the House of Commons last week that the UK government “does not believe that the windfall tax is the simple and easy answer to every problem”.
“However, we are pragmatic, and we want to see our energy companies, which have made extraordinary profits in times of extremely high prices, invest those gains back in British jobs, growth and energy security,” he said.
“I’ve made it clear and said time and again that, if this doesn’t happen quickly and on a significant scale, no option is off the table.”