OEUK warns EPL will damage UK industry

Offshore Energies UK (OEUK) has described the new taxes imposed on the country’s offshore oil and gas operators as “a backward step”.

IMPORTS

The industry body warned that the Energy Profits Levy announced today would discourage UK offshore energy investments, resulting in decreases in oil and gas exploration and production and a rise in imports.

OEUK’s chief executive Deirdre Michie said that the move was the opposite of that promised in the British Energy Security Strategy published last month.

She added that investor confidence depended on taxes being predictable so the introduction of a new one, without formal consultation, would also undermine investment in offshore wind and other low-carbon energies.

ADDITIONAL TAXES

OEUK was responding to Chancellor Rishi Sunak’s announcement that the Energy Profits Levy would see the industry pay from today a further £5 billion taxes this year.

UK offshore oil and gas operators are already due to pay £7.8 billion this year, which the body states is a 20-fold increase on two years ago, and equates to some £279 per UK household.

OEUK added that the announcement undermined trust and created long-lasting uncertainty over future investment given that the Government had previously opposed a windfall tax.

The body said it would review the proposals including the impact of the new investment allowance.

SUPPLY CHAINS

Ms Michie said that help was vital for consumers but funding through sudden new taxes damaged British business.

The new levy would harm major operators as well as those in the UK supply chain, providing specialised equipment and services to the oil gas and renewable industries.

OEUK said that the oil and gas sector supported some 200,000 UK jobs.

INVESTMENT

Ms Michie called for an energy summit involving Downing Street, the Chancellor and oil and gas industry employers to avoid “shockwaves that would last for years to come”.

“In April we welcomed the Government’s British Energy Security Strategy, which pledged ‘Secure, clean and affordable British energy for the long term’,” said Ms Michie.

“We thought long-term meant years or decades, but it seems to have meant just a few weeks.

“The strategy’s focus was on attracting investment to build a greener energy system to reduce dependence on imports. These new taxes will achieve the exact opposite of what the government promised in April.

“They will drive away investors and so reduce UK energy production. That means less oil, less gas, and less renewables. It also makes it much harder for the UK to reach net zero by 2050.”

“Right now, the key task is to prevent a flood of investment formerly earmarked for UK energy projects now being diverted to other countries.

“We need Downing Street and the Treasury to work with us to avoid the UK being starved of the tens of billions of pounds of investment needed to build the energy systems and energy security that will protect UK consumers from more crises like this one.”

ENERGY PROFITS LEVY

The OEUK said that the oil and gas sector currently pay a 40% headline rate tax on profits consisting of 30% ring fenced corporation tax and 10% supplementary charge.

The Energy Profits Levy is an additional 25% tax on UK oil and gas profits on top of the existing 40% headline rate of tax, taking the combined rate of tax on profits to 65%.

Companies will not be able to offset previous losses or decommissioning expenditure against profits subject to the levy.

In oil and gas prices return to historically more normal levels, the Government will phase out the Energy Profits Levy, and the legislation will include a sunset clause, effective at the end of December 2025.