Exclusive:Treasury 'poised to miss out on £250m in tax receipts from Rosebank oil development'

The UK government is poised to miss out on more than £250 million from tax revenue over controversial plans to open up a North Sea oil field, campaigners have said.

According to a new analysis seen by The Scotsman, tax breaks for UK North Sea oil and gas developers tied with the proposed end to the contentious energy profits levy alongside oil prices, mean the Treasury is set to issue more relief and breakes than is due in tax receipts over the Rosebank oil proposals.

Campaigners take part in a Stop Rosebank emergency protest outside the UK Government building in Edinburgh Photo: Jane Barlow/PA Wire

Norwegian state-owned fossil fuel giant, Equinor, and Rosebank’s minority owner, Ithaca Energy, are set to earn up to £1.5 billion from the project.

Campaigners claim the tax regime means the Rosebank development is “incredibly high risk for our public finances” and undermines Chancellor Rachel Reeves’ priority of economic growth.

It comes as separate analysis predicted the UK will be almost entirely dependent on foreign gas by 2050 regardless of whether Rosebank and the Jackdaw developments are approved.

UK Energy Minister Michael Shanks is expected to announce the results of a government consultation on the Rosebank field later today.

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The UK government said it does not comment on individual cases but insisted it was “taking a responsible approach to tax”.

In previous years, fossil fuel giants including BP and Shell have benefited from more in terms of investment relief and payments from the Treasury for decomissioning than they have paid in tax.

The new analysis, carried out by WWF Norway, found that in a base-case scenario — assuming oil prices of $70 per barrel, above where they are today — Equinor and Ithaca would earn £1.5 billion in profit, while the UK government would miss out on £258m.

The North Sea oil and gas sector has criticised the energy profits levy

In a lower-price scenario of $40 per barrel — considered likely if countries take action to meet climate goals — UK Treasury could miss out on as much as £1.3bn.

To offset the high tax rate in the energy profit levy, oil firms currently only cover around 16 per cent of the capital expenditure of developing a new field, with the UK government shouldering the vast majority of the cost.

Currently, oil and gas companies pay a headline rate of 78 per cent on any profits they make from North Sea drilling through the energy profits levy, which is due to end in March 2030 or if oil prices fall to a set level.

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But North Sea developers are able to to write off most of their development costs before profits are taxed with UK taxpayers now effectively covering 84 per cent of the development costs of new projects, like Rosebank - after the rate was lowered from 91 per cent last year.

Equinor will make most of its investment for Rosebank while the generous reliefs are switched on, but it will generate most of its profit after 2030, when the windfall tax is no longer in effect.

The government tax breaks are handed out now, but the tax receipts will be collected when the tax rate is lower. According to the analysis, this could leave a deficit to the UK Treasury of £258m.

Tessa Khan, executive director at Uplift, said: “Oil and gas production isn’t the cash cow the Treasury thinks it is. In the case of Rosebank, the UK public would lose hundreds of millions of pounds from its development, while its owners, including the Norwegian government, would walk off with £1.5bn in profit.

Uplift's executive director Tessa Khan

“Were it not for the UK taxpayer shouldering the vast majority of the risk, Equinor wouldn’t touch a project like Rosebank with a bargepole. If the field’s financials aren’t bad enough to start with, a fall in the price of oil would make an already terrible deal even worse for the Treasury.”

She added: “It’s not as if Rosebank will do anything to lower our fuel bills or boost UK energy security – it won’t. Most of its oil will be exported and sold on the international market.

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“But developing this field would be a devastating decision at a time when extreme weather, fueled by climate change, is hitting millions around the world. Beyond the enormous emissions from burning this oil, it would send a signal that the UK has given up on climate action.

“Rosebank isn’t just incompatible with the UK’s climate obligations, it’s incredibly high risk for our public finances too, and no serious Chancellor should give it their backing.”

A UK government spokesperson said: “We’re committed to managing the North Sea in a way that ensures a fair, orderly and prosperous transition, while recognising domestic oil and gas will continue to have a role in the energy mix for decades to come.

“We are taking a responsible approach to tax, which recognises the ongoing role of the oil and gas industry and it’s workforce in our current energy mix, while ensuring the sector contributes more towards our energy transition.”