Oil and gas producers have branded the UK one of the most “fiscally unstable” regimes in which to do business, as chancellor Jeremy Hunt examines a further increase in windfall taxes on fossil fuel companies.
In a letter seen by the Financial Times, an industry group representing 20 British oil and gas companies — including top-10 producers Harbour Energy, Ithaca Energy and Neo Energy — told Hunt that higher windfall taxes would put at risk the sector’s “appetite and financial ability” to invest in new projects.
Hunt is assessing a five percentage point increase in the energy profits levy (EPL) to 30 per cent as he seeks to find up to £54bn of savings ahead of the Autumn Statement on November 17.
The EPL was introduced by then chancellor Rishi Sunak in May this year, raising the oil and gas sector’s headline rate of tax to 65 per cent from 40 per cent. The levy is due to expire at the end of 2025, but Hunt is also looking at extending it until 2028.
In its letter, the Association of British Independent Exploration Companies (Brindex) said the EPL had “already created long-lasting fiscal uncertainty and elevated the UK to one of the most fiscally unstable and complex regimes to do business in”.
“Yet another change to the tax regime, in just a matter of months, would be disastrous to the sector,” Robin Allan, Brindex’s chair, wrote, adding that uncertainty about what would be announced on November 17 was “helping drive investment out of the UK”.
A number of western governments, including the US and in Europe, have threatened or announced higher taxes on oil and gas producers, which have reported bumper profits on the back of a surge in commodity prices following Russia’s invasion of Ukraine.
But the UK government is in a difficult position: it is simultaneously asking oil and gas groups to boost production in the North Sea to bolster domestic energy security, and faces a backlash from some of those groups as it weighs uprating and extending the EPL after just six months.
Some oil majors, such as Royal Dutch Shell, have acknowledged they must play their part in easing cost of living crises.
But Allan said Brindex’s members were “disproportionately” affected by the EPL, as they lacked the majors’ global reach as well as large, highly profitable trading arms that are not affected by the windfall tax.
The influence of smaller oil and gas producers, often backed by private equity firms, that Brindex represents has increased over the past eight years as majors have sold out of the mature North Sea or shrunk their portfolios to focus on lower-cost regions.
Brindex’s members also include Serica Energy, which is responsible for 5 per cent of the gas produced in the UK per year.
Allan urged Hunt not to water down a generous investment allowance introduced by Sunak in May, which allows companies to access an overall 91p tax saving for every £1 they invest in UK fossil fuel projects.
“Any changes to the availability and rate of the investment allowance would be yet another blow to the sector’s already weakened confidence in the UK tax regime,” he wrote.
The Treasury declined to comment.