Windfall tax ‘risks billions in North Sea investment’ says industry chief
The caution comes amid increasing calls for North Sea companies to pay a one-off charge on unexpectedly large profits, a result of rocketing international fuel prices, to help households and energy-intensive industries cope with higher bills.
But such a levy could risk industry plans to invest in green infrastructure such as wind farms, hydrogen plants and carbon-reduction technology, according to Offshore Energies UK (OEUK) chief executive Deirdre Michie, and risk billions of pounds in investment being moved to other countries.
OEUK projections show £200 billion to £250 billion has been set aside by energy companies to build offshore wind farms, hydrogen production plants and carbon capture facilities and maintain oil and gas supplies.
In a speech at the membership organisation’s conference in Aberdeen on Tuesday, Ms Michie will contend that the charges would not just damage company profits but also drive up the cost of borrowing money for new projects in the UK, making them more expensive and in some cases “unviable”.
The warning comes just days after National Grid chief executive John Pettigrew said such a tax on the UK’s offshore oil and gas producers would hit investment in renewables and threaten attempts to cut emissions.
“We are worrying about energy prices now, but we should worry about energy supplies as well,” Ms Michie said.
“The risk of shortages and rationing is already real in Europe.
“It will become real here too – unless we invest in the North Sea and other offshore resources.
“The threat to supplies is an issue not just now but for the long-term.”
OEUK figures estimate that UK oil and gas operators will pay £7.8 billion in tax this year – a 20-fold increase in 12 months, worth £279 per household.
The Office for Budget Responsibility has estimated that it will cost £1.4 trillion for the UK to achieve its target to reach net zero emissions by 2050, with the offshore industry expected to provide at least £1 trillion of that money.
“These are huge long-term projects with many risks,” Ms Michie said.
She highlighted that energy firms may be booming right now but also face significant losses during downturns.
“That is why our industry puts a premium on stability in the way it is taxed and regulated,” she said.
“Sudden tax increases make it more expensive to borrow money for big projects – and that can make them unviable.
“We should not risk upending what could be a remarkable British success story for a short-term gain that will fade far faster than the drop in investment that will certainly follow.
“If investment falls, then production will fall too and the UK will have to buy ever more of its oil and gas from other countries – meaning surging import bills and exposure to future shortages.
“Such policy swings on tax risk achieving the opposite of what politicians say they want – because of the uncertainty they generate.
“It means a windfall tax now will reduce energy security, undermine the energy transition – and impose huge long-term costs on UK consumers and businesses.”
Scottish Conservative MP for West Aberdeenshire and Kincardine Andrew Bowie raised fears over the impacts on jobs and businesses.
He claimed a windfall tax would amount to “little more than a raid on the north-east of Scotland”.
“It would threaten future investment and risk that push towards 2050,” he said.
“This isn’t just about multinationals and global profits.
“I’m really concerned about the tech and supply firms which underpin the local economy, and tens of thousands of jobs across my constituency and the region.”
Tonight, Scottish Labour leader Anas Sarwar will be taking part in a panel at the Offshore Energies UK conference on promoting diversity and inclusion in the energy sector.
But he said such a tax was “fair” in current circumstances.
“The oil and gas industry is vital to Scotland’s economy, the economy of the north-east and our energy security,” he said.
“But we are in the midst of a cost of living crisis and a climate crisis.
“While thousands of Scots are hit by soaring energy costs, oil and gas giants are posting record profits.
“It’s only fair that we have a windfall tax on excess profits so that money is put back into people’s pockets.”
He acknowledged the importance of the oil and gas sector for the Scottish economy but said we must plan for the future.
“While we will continue to engage positively with the sector, I am not afraid to speak truth to power,” he added.
“The status quo is unsustainable – change is coming.”
Scottish ministers have also expressed support for a one-off tax which could be used to help alleviate the current cost-of-living crisis, but only the UK government has the powers to impose it.
They are calling for “further, tangible actions to support households”, including a temporary cut in VAT on energy bills, action on the Warm Homes Discount and reinstating the £20 uplift to Universal Credit which provided a lifeline to low-income households during the pandemic.
A spokesperson for the Scottish Government said: “To help pay for this support the UK government must implement a one-off windfall tax on companies making excessive profits, which only they have the power to do, and use the proceeds to target support at those who need it the most.
“This must be a balanced approach across sectors and companies, not just energy companies disproportionately based in Scotland.
“If designed and implemented correctly, there is no reason that a one-off windfall tax should disincentive new investment in our energy sector.”
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