Shrinking Oil & Gas Profits Cast Doul24 Sep 2024 08:38
Hopes the Labour government will fund its ambitions to turn the UK into a “clean energy superpower” through taxing the oil and gas industry have been cast into doubt as new figures show money raised from the Energy Profit Levy has been flat and may yet shrink.
The levy, dubbed the windfall tax as it was brought in by the prior Conservative government when oil and has profits were high, is set to be raised and extended in the Labour government’s budget in October.
Chancellor Rachel Reeves is also aiming to remove investment incentives in a move that industry analysts have warned will render the North Sea industry “fatally wounded in less than five years”.
The Office of National Statistics published the latest EPL data which showed a drop from 1,880 in Jan-Jul 2023 to 1,333 in Jan-Jul 2024.According to business and tax advisers RSM UK, the figures highlight a steady downward annual trend of revenues since the windfall tax was introduced in 2022.
Sheena McGuinness, head of renewables and cleantech RSM, said windfall tax revenues have been on a “steady decline since its inception” with the most recent figures showing a 29% drop between the same period in 2023.
“The historical trends support concerns about the shrinking tax base and cast further doubt on the assertion of a £1.2bn per annum uplift in windfall tax revenues which the government have ear marked to fund GB Energy.
“If plans to extend and increase the Energy Profit Levy to 38% are brought in by the government, we might see a short-term increase in revenues, but the impact on future investment and behavioural shift could result in further corrosion of the tax base, in turn, revenues.
“Unless the return on capital from GB Energy outperforms the private sector early stage returns in the renewables sector, any changes to the windfall tax now may exacerbate the budgetary deficit with increased borrowing likely to fund any shortfall.”
Mike Tholen, sustainability and policy director at trade body Offshore Energies UK (OEUK), said the fall in revenues for the tax man reflected a decline in investment that has been made worse by high taxes.
He said: “There has been a rapid decline in production due to under investment over this decade and time is running out to mitigate damage that has already been done to the offshore energy industry. For more than two years UK oil and gas operators have paid three times the rate of corporation tax of any other sector in the economy.”
But he held out hope that a new industrial strategy, the launch of which was confirmed by Reeves in her speech at the Labour Party Conference in Liverpool, would support the sector’s ambitions.
Sign In
Follow the stocks
