New UK Oil Tax Raises Risk of Energy Shortages
The UK government’s decision to impose a 65 percent tax rate on the nation’s offshore energy providers will do long-term damage to the industry and raise the risk of future energy shortages, industry body Offshore Energies UK (OEUK) has told the government.
In a letter sent to the UK Chancellor of the Exchequer on behalf of the offshore energy industry, OEUK Chief Executive Deirdre Michie warned that the new tax risks driving away UK oil and gas investment. Michie also outlined that the government’s climate ambitions would not be helped by the tax.
A government consultation on how the new tax will work closed just before midnight on June 28. The new tax imposes a 25 percent surcharge on the profits made by companies producing oil and gas on the UK continental shelf, in addition to the 40 percent tax rate they were paying, OEUK highlighted in a statement posted on its website accompanying the letter. The total effective tax rate is 65 percent, meaning the total tax rate is over three times greater than any other UK sector, OEUK noted.
OEUK highlighted that the UK gets 75 percent of its total energy from oil and gas and that the nation’s oil and gas operators collectively produce about a third of the nation’s gas and the equivalent of three-quarters of its oil. Production from those existing oil and gas fields is predicted to dwindle rapidly in the next few years without further investment as they age and become depleted, OEUK warned.
“This is a tough tax for our industry, and it could reduce our ability to invest in the UK’s future energy supplies just as energy security is moving to the heart of national security,” Michie said in an OEUK statement.
“Right now, the world is at risk of shortages and price rises that will have huge impacts on consumers and on our economy, so we should be doing all we can to maximize our own supplies, not deterring investment with new taxes,” Michie added.
“We all want to move quickly to a cleaner energy future, but our ambitions must be grounded in realism if we are to avoid dramatically increasing our reliance on imported energy in the short term. It’s why we continue to raise concerns about the impact of the levy on the UK’s energy security, economy and thousands of jobs,” Michie went on to say.
When Rigzone asked HM Treasury for a comment on OEUK’s latest update, a government spokesperson responded with the below statement.
“As set out in the British Energy Security Strategy, and with Putin’s invasion of Ukraine illustrating the merit of this, North Sea oil and gas are going to be crucial to the UK’s domestic energy supply and security for the foreseeable future – so it is right we continue to encourage investment there”.
“The levy’s investment allowance means businesses will overall get a 91p tax saving for every £1 they invest - this nearly doubles the tax relief available and means the more a company invests, the less tax they will pay”.
On June 23, OEUK outlined that the industry had raised investor confidence concerns at a meeting with the chancellor. On June 21, OEUK repeated calls to prioritize home produced energy as the draft Profits Levy Bill was published. Earlier this month, OEUK warned that the UK government’s new windfall tax may already be undermining the major investments needed to “keep Britain’s lights on”.
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