OEUK Shares Windfall Tax Concerns

OEUK Shares Windfall Tax Concerns
The UK's oil and gas industry will pay $9.6 billion (GBP 7.8 billion) in taxes this year.

Industry body Offshore Energies UK (OEUK) has revealed that it has written to UK energy secretary Kwasi Kwarteng, setting out the sector’s latest responses to the cost of living crisis and its concerns over the consequences of a windfall tax.

The UK’s oil and gas industry will pay $9.6 billion (GBP 7.8 billion) in taxes this year, a “significant boost” for the UK Treasury and roughly equal to one percent of the nation’s entire tax revenue, OEUK told the UK government.

In a statement posted on its website, OEUK outlined that the $9.6 billion (GBP 7.8 billion) tax payments for 2022-23 are equivalent to about $344 (GBP 279) per UK household and represent a 20-fold increase on 2020-21. Back then, “plummeting” demand and prices saw most energy companies make multi billion pound losses, contributing to a UK tax take of just $493 million (GBP 400 million) from the UK offshore oil and gas sector, OEUK noted.

The organization said that the recent surge in global energy prices has reversed that trend and highlighted that its letter points out that the existing 40 percent tax rate imposed on the UK’s offshore oil and gas operators means the Exchequer “is already among the biggest beneficiaries”.

“We are deeply concerned about the difficult circumstances facing UK consumers and our industry is committed to supporting the nation now and building a low-carbon future,” Deirdre Michie, OEUK’s chief executive, said in an organization statement.

“We are proud that we are able to help by contributing a predicted GBP 7.8 billion in UK taxes this year alone. Those payments, equivalent to $344 (GBP 279) per home, can help the government soften the pressure for households. This year is not a one-off. Between 2021 and 2026-27 the OBR predicts our industry will pay around $28.4 billion (GBP 23 billion) in UK tax,” Michie added in the statement.

“This also shows the wider value of our industry to the country. Many European countries are facing energy shortages and the risk of energy rationing. The UK’s offshore resources, oil, gas and offshore wind, are helping protect us from similar crises. They boost our energy security as well as the Exchequer,” Michie continued.

In the statement, Michie also highlighted that the industry and its supply chains support 195,000 workers, “whose skills are going to be essential in building the low-carbon and renewable energy systems that will enable the UK to reach net zero”.

“These are huge long-term investments with many risks, especially around swings in the prices of gas and oil. The downturn in 2020/21, for example, saw many of our members incurring significant losses,” Michie said.

“That is why our industry puts a premium on stability and predictability in the ways it is taxed and regulated. Tax increases make it more expensive to borrow money for big projects – and that can make them unviable,” Michie added.

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

Back in March, OEUK noted that threats of a windfall tax on the UK’s offshore oil and gas operators could cause “irreparable damage” to the industry and put consumers at risk of future supply crises. The organization added that calls for a windfall tax offered consumers false hope and ran the risk of damaging the UK’s own energy industry.

The UK’s opposition Labour party has been pushing for a “windfall tax” on energy profits, although the ruling Conservatives voted against the idea this week.

To contact the author, email andreas.exarheas@rigzone.com

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