The North Sea industry has warned the government not to toughen its windfall tax on oil and gas profits in the autumn budget, claiming it risks losing £12bn in tax receipts and jeopardising 35,000 jobs.
The industry’s trade association, Offshore Energies UK (OEUK), has presented Treasury officials with data analysis that appears to show that proposed changes to the tax regime would devastate the sector’s predicted investment over the second half of this decade.
The group said it had made the analysis public to “help inform decision-making” before the chancellor’s budget in October.
Labour came to power with an election pledge to toughen the windfall tax regime put in place by the previous government, known as the energy profits levy, by raising the headline tax rate by 3 percentage points to 78%.
It has also promised to close the “loophole” left by the previous government that enabled oil and gas firms to reduce their taxes through investment allowances.
The OEUK analysis assumes that all allowances will be scrapped, although this has not been explicitly proposed by the government.
The report shows that trying to squeeze higher taxes from oil and gas profits would conversely lead to a £12bn drop in tax receipts to the Treasury by wiping out new investments, and could prompt an overall loss in economic value of about £13bn.
OEUK said this investment slowdown could put 35,000 jobs at risk and may slash the forecasts for new oil and gas production volumes in the UK by two-thirds.
David Whitehouse, OEUK’s chief executive, said the analysis showed that the government’s proposals to go further would “trigger an accelerated decline of domestic production, and a corresponding reduction in taxes paid, jobs supported and wider economic value generated”.
He said: “This is a government that has made economic growth its main priority, and yet our analysis shows that its policy will ultimately reduce this sector’s contribution to the UK economy.”
Labour plans to use the higher taxes taken from the North Sea to help fund plans to turn the UK into a green energy “superpower” in line with its goal of making the UK’s electricity system net zero by 2030.
The ambitious target is expected to cut Great Britain’s emissions and reduce overall energy costs.
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A separate report from UK Steel, which represents the steel-making sector, said that its members in Great Britain pay up to 50% more for their energy than competitors in France and Germany owing to the UK’s reliance on gas, which adds up to £37m to electricity costs.
The price disparity is predominantly driven by higher UK electricity market costs, due to the high price of running gas power plants, and partly by greater network charges, according to UK Steel. It has called on the government to help cover the cost of using power networks and consider moving policy levies from electricity bills on to gas bills to make it more economic for steelmakers to run electric furnaces.
A Treasury spokesperson said: “We are committed to maintaining a constructive dialogue with the oil and gas sector to finalise changes to strengthen the windfall tax, ensuring a phased and responsible transition for the North Sea.”
The spokesperson added: “Our plans for a new national wealth fund and Great British Energy will unlock investment and create thousands of new jobs in the industries of the future.”