BP and Shell raise concerns about recent ‘windfall’ taxes impact on future investments focused on ensuring security of energy supply for the UK.
The new policy requires firms to pay 25 per cent on all profits, but they will receive tax breaks worth 91p for every £1 invested. The new levy will be phased out “if oil and gas prices return to historically normal levels”.
It’s expected to raise a record-breaking £5bn over the next year to help fund support packages for households currently struggling with the rise in cost of living crisis.
Many people applaud the fact that big oil is footing the bill, given that they have enjoyed considerable profits as a result of soaring energy prices. Others are quick to point out that these came after serious losses during the pandemic.
A Shell spokesperson said the company understands the “worry for millions of people about how high-energy costs are challenging their household budgets” and the need for support “to help make ends meet”.
“But at the same time, we must sustain investment in securing supplies of oil and gas the UK needs today, while allocating future spend for the low carbon energies we want to build for the future,” they continued.
“However, in its current form, the levy creates uncertainty about the investment climate for North Sea oil and gas for the coming years.
“And, longer term, the proposed tax reliefs for investment don’t extend to the renewable energy system we want to drive forward in the UK and invest in very substantially.
“When making plans for the next decade and beyond, we need certainty.”
Supporting this position is Deirdre Miche, chief executive of the industry body Offshore Energies UK (OEUK). In speaking with Sky News, she said: “Historically when this [windfall tax] has happened, it doesn’t work, it undermines investment and, for the last almost 10 years, we have had fiscal predictability and stability which has brought investment back into the basin.”
So, what’s another solution?
Wood Mackenzie, the global energy consultancy, suggests that tax rates in the North Sea should vary automatically with the price of oil and gas in order to create a predictable system that would help companies plan for the long-term.
“No oil and gas company is going to come out and ask to be taxed more,” said Graham Kellas, head of fiscal policy at Wood Mackenzie. “But tax bands would deliver one thing the industry does ask for, and that’s predictability in the fiscal system to enable long-term planning”.
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