UK Industry Body Issues Windfall Tax Levy Statement

In a release sent to Rigzone, industry body Offshore Energies UK (OEUK) highlighted that the government has “confirmed further details on the windfall tax levy … in the House of Commons”.

“This announcement made in a late-afternoon policy paper issued without warning after the Chancellor’s fiscal statement, has raised the Energy Profit Levy, taking the headline tax rate for the sector to 78 percent, further extended the levy to 31 March 2030, removed the EPL’s investment allowance,” OEUK said in the release.

OEUK added that it also “signaled further reductions in capital allowances” but noted that “the decarbonization allowance and the levy’s price floor - the Energy Security Investment Mechanism - will remain in place”.

In the release, OEUK Chief Executive David Whitehouse said, “this is not partnership working between government and industry”.

“These announcements have been made without meaningful engagement with this sector. We recognize the government has significant spending challenges to manage but … [this] announcement will only serve to rock confidence further,” he added.

“The offshore energy sector supports over 200,000 jobs. These are real people, working in our energy industry today … [This] announcement jeopardizes jobs in communities across the UK. This is something the Prime Minister committed in his manifesto not to do,” he continued.

Whitehouse continued by saying “announcements like this without engagement is no way to treat these hard-working people”.

“We have … spoken to the Treasury Minister and expect further and urgent engagement with the sector,” he added.

Rigzone asked the UK Department of Energy Security and Net Zero (DESNZ) and HM Treasury (HMT) for comment on OEUK’s release.

In response, a HMT spokesperson told Rigzone, “we are extending and increasing the Energy Profits Levy, and closing its core investment allowance, to ensure oil and gas companies contribute more towards our clean energy transition”.

“We will work with the sector to ensure the transition over the next decades does not jeopardize workers, starting with Great British Energy, which is set to create thousands of jobs,” the spokesperson added.

At the time of writing, DESNZ has not yet responded to Rigzone’s request for comment.

In a separate press note sent to Rigzone, Wood Mackenzie highlighted that, according to new research by the company, “the UK government’s announcement of further changes to the Energy Profits Levy … could paralyze upstream investment for the duration of this parliament if implemented in the October budget”.

“The research states that the government suggests the changes to the EPL could bring in annual average revenue of GBP 1.2 billion ($1.53 billion), or GBP 6 billion ($7.67 billion) over the next parliament,” it added.

“This would be achieved by increasing the EPL from 35 percent to 38 percent, extending the sunset clause (the time when the levy will be abolished) by 12 months to 31 March 2030, abolishing the 29 percent investment allowance and reducing the capital allowances,” it continued, noting that “just how these critical allowances would be changed was left hanging”.

“The research adds that the extension of the sunset clause to 2030 was surprising because Labour had previously stated it would keep its version of the EPL for the duration of the parliament which will end in 2029”, Wood Mackenzie stated in the release.

“To therefore extend the sunset clause to 2030 makes little sense and retains one of the EPL’s critical flaws: the misalignment of fiscal terms between the investment phase and the producing phase,” it warned.

In the release, Graham Kellas, Senior Vice President of Global Fiscal Research at Wood Mackenzie, said, “after less than a month in power, the Labour government has continued in the same vein as the previous Tory government by making further temporary changes to the upstream tax system without addressing the uncertainty over the critical capital allowances”.

“The short-term gains of tweaking the EPL could result in the premature slowdown of investment across the upstream sector which could lead to accelerated cessation of production,” Kallas added.

James Reid, Senior Research Analyst at Wood Mackenzie, stated in the release that, “the sunset date has extended so often investors will now pragmatically assume that the EPL is a permanent feature of the system, rather than assuming terms become more favorable in the future”.

Rigzone asked OEUK, DESNZ, and HMT for comment on Wood Mackenzie’s press note. In response, HMT redirected Rigzone to its comment on OEUK’s release. OEUK told Rigzone it had no comment beyond its release. At the time of writing, DESNZ has not yet responded to Rigzone.  

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