Windfall Tax Rise Sparks Fears for UK Energy Industry

Companies across the UK's oil and gas supply chain have expressed "grave concern" over the government's plans to increase windfall taxes and axe investment incentives. A letter signed by 42 firms, including manufacturers, engineers and technology companies, warns that the proposed changes threaten £200 billion of investment in all forms of domestic energy, including renewables.

The letter, issued by Offshore Energies UK (OEUK), argues that the government's proposed increase in windfall taxes on oil and gas profits, from 75% to 78%, and extension of the tax until 2030, will have a detrimental impact on the industry. The removal of investment incentives, the letter further states, creates uncertainty and will hinder investment across the entire supply chain, leading to job losses and negatively impacting communities.

OEUK argues that the industry's revenues are crucial for funding investment in renewable energy projects. A hostile tax environment, they claim, would not only harm the oil and gas industry but also hamper the development of nascent technologies like floating offshore wind and carbon capture and storage, which rely on investment from fossil fuel revenues.

"Sufficient investment in the UK energy transition can only happen if we support, not undermine our domestic oil and gas sector," the letter states.

While the Labour Party's manifesto explicitly outlined the plans to increase and extend the windfall tax and reduce investment allowances, the offshore energy industry hoped for a consultation with the new government. OEUK is calling for a role in the government's industrial strategy council, expressing deep concern that the current proposals could undermine long-term solutions and jeopardise jobs across the UK.

David Whitehouse, OEUK Chief Executive, told BBC Radio 4's Today programme that the "vast majority" of companies signing the letter are "smaller companies" who are the "lifeblood of the UK economy."

A windfall tax of 78% would align the UK with Norway's regime. However, industry officials argue that Norway's tax and regulatory environment has been much more stable and offers generous investment incentives.

The previous Conservative government had already imposed two windfall tax hikes on oil and gas profits, raising them to 65% and then 75% in response to soaring energy prices following the Russian invasion of Ukraine. Last May, Harbour Energy, the UK's largest oil and gas producer, blamed the government's windfall tax changes for cutting 350 UK jobs.

A Treasury spokesperson responded by stating that the government is "strengthening the previous government's windfall tax to ensure North Sea oil and gas producers contribute their fair share towards our energy transition." They also emphasized that the government's plans for a National Wealth Fund and the establishment of Great British Energy will create "thousands of new jobs in the industries of the future".

Chancellor Rachel Reeves has previously hinted at increased taxes in the upcoming autumn Budget, although Labour has promised no tax rises on "working people." Lucy Coutts, investment director at wealth manager JM Finn, suggests that this has left many sectors wondering where these tax hikes will come from, potentially affecting the oil and gas industry, banks, and other sectors. This uncertainty, she argues, has created nervousness about the Chancellor's decisions in October.