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Oil and gas industry warns ministers on impact of any new ‘windfall tax’

An oil platform stands amongst other rigs which have been left in the Cromarty Firth near Invergordon in the Highlands of Scotland. Rig platforms are being stacked up in the Cromarty Firth as oil prices continue to decline having a major impact on the UK’s North Sea oil industry leaving thousands of people out of work.
An oil platform stands amongst other rigs which have been left in the Cromarty Firth near Invergordon in the Highlands of Scotland. Rig platforms are being stacked up in the Cromarty Firth as oil prices continue to decline having a major impact on the UK’s North Sea oil industry leaving thousands of people out of work.

A windfall tax on oil and gas producers would put investment and jobs at risk, the industry’s trade body warned ministers.

Boris Johnson has come under pressure to introduce a one-off levy on firms which have benefited from globally high oil and gas prices and use the revenue to fund measures to ease the cost-of-living crisis on households struggling with rising bills.

But Offshore Energies UK (OEUK) highlighted the £7.8 billion in taxes the industry is already expected to pay as a result of the boom and stressed the need for “stability and predictability” in the fiscal regime.

In a letter to Business Secretary Kwasi Kwarteng, OEUK’s chief executive Deirdre Michie said: “The offshore oil and gas industry and its supply chain work to long-term investment cycles with multiple and complex risks, that result in projects having to be worked for many years before a commitment can be made.”

A “stable and predictable regime” had historically resulted in increased investment and activity, leading in turn to a growth in tax revenue.

“When ‘windfall taxes’ have been used in the past, data demonstrates that investment has fallen away, undermining capex (capital expenditure) and opex (operational expenditure) activities, jobs and production.

“Therefore, we continue to reinforce the need for stability and predictability in the fiscal regime to be maintained.”

The £7.8 billion in tax payments for 2022-23, predicted by the Office for Budget Responsibility, are equivalent to about £279 per UK household.

They also represent a 20-fold increase on the revenue in 2020-21 when plummeting demand and prices saw a UK tax take of just £400 million, OEUK said.

Chancellor Rishi Sunak has not ruled out a one-off levy on the windfall profits, but Mr Johnson told MPs on Wednesday that “this Government are not, in principle, in favour of higher taxation”.

“What we want to do is take a sensible approach, governed by the impact on investment and jobs,” Mr Johnson said.

The letter from OEUK appears aimed at spelling out to the Government that there would be an impact from a new tax.

Ms Michie said: “Tax increases make it more expensive to borrow money for big projects – and that can make them unviable.

“It’s why periods of fiscal stability are associated with increased investment, whereas sudden tax increases are often followed by decreased investment.”

At Prime Minister’s Questions, Labour leader Sir Keir Starmer called for Mr Johnson to make an “inevitable U-turn” on imposing a windfall tax.