Plans to raise windfall tax on energy sector put ‘thousands’ of jobs at risk, offshore industry warns

Plans to increase Britain’s super-tax on windfall profits put thousands of jobs at risk and undermine the country’s progress towards net-zero emissions, an industry body has warned.

The government confirmed at the end of July that it would go ahead with an increase in the Energy Income Tax on “extraordinary” profits from November.

This will raise the tax rate from 35 to 38 percent and increase the main tax rate on upstream oil and gas activities to 78 percent.

The government also plans to scrap an “unjustifiably generous” tax allowance and reduce the level of tax allowances taken into account when calculating taxable profits.

In an open letter to Her Majesty’s Treasury, seen by This is Money, Offshore Energies UK (OEUK) said the plans will harm “tens of thousands of people whose jobs depend on oil and gas, wind, hydrogen and carbon capture projects”.

The EPL was implemented after the easing of Covid restrictions and Russia’s invasion of Ukraine led to spiralling energy prices and windfall profits for oil and gas companies.

Initially set at 25 per cent (on top of the main 40 per cent tax rate already paid by the industry), the levy was raised to 35 per cent by then Chancellor of the Exchequer Jeremy Hunt in January last year.

While the impact has been felt by industry giants such as Shell and BP, it has crushed the profits of much smaller London-listed companies such as Ithaca, Serica, Harbour and EnQuest, which have cut back on UK investment as a result.

In a separate statement released on Thursday as part of its interim results, Ithaca Energy warned of the “long-term damage that further changes to the tax regime will cause to the viability of the UK’s energy security and decarbonisation goals.”

OEUK, which represents more than 400 companies, warned that plans to increase the EPL and limit incentives “put thousands of jobs at risk in businesses that are critical to the UK Government’s industrial strategy and progress towards its net zero targets”.

The letter, whose signatories include manufacturing, engineering and technology companies, urges the Government to partner with the sector to help “realise the full benefits of a local energy transition, supported by UK-anchored jobs, skills and businesses”.

OEUK told Minister of State for Industry and Decarbonisation Sarah Jones: ‘For our businesses, this surprise risks operators, large and small, further reducing or postponing their investment plans in response.

‘The ramifications will be felt throughout the supply chain, through the jobs and communities this industry supports, both directly and indirectly.

“It is vital that the new Government demonstrates a real commitment to working in partnership with the sector to ensure continued investment and deliver on promises to safeguard jobs.”

OEUK boss David Whitehouse added in a statement: ‘To realise the full potential of these world-class UK companies over the next 50 years, there is no simple choice between oil and gas or renewables.

‘The reality is that we will need both to support these companies, boost the country and grow the economy.

“If oil and gas operators reduce their activity as a result of the proposed changes to the Energy Profit Tax, this will have a direct impact on our world-class supply chain. The impact of the changes to the Energy Profit Tax will be felt much more widely than by oil and gas operators who pay the tax directly.”