Labour’s planned hike in the windfall tax on North Sea oil and gas producers will deal a £13billion blow to the economy, according to analysis by the industry.
Offshore Energies UK (OEUK), which represents the sector, said most investment plans over the next five years would be scrapped if the increase goes ahead, undermining the government’s goal of boosting growth.
The industry faces an increase in the headline tax rate from 75 per cent to 78 per cent and the loss of tax breaks for investment.
OEUK said that while it would mean a ‘very short-term’ boost to Treasury tax revenues, that would soon be thrown into reverse – and end up leaving the public purse £12billion worse off.
That could jeopardise plans to use windfall tax income to pay for investment in green energy and other growth plans, it warned
Blow: The North Sea oil industry faces an increase in the headline tax rate from 75 per cent to 78 per cent and the loss of tax breaks for investment
David Whitehouse, OEUK’s chief executive, said: ‘This is a government that has made economic growth its main priority and yet our analysis shows that its policy will ultimately reduce this sector’s contribution to the UK economy.’
The figures were released as Chancellor Rachel Reeves prepares to deliver her autumn Budget next month.
According to the OEUK analysis, Labour’s plans would see capital investments in the sector fall from the expected £14.1billion to just £2.3billion over 2025 to 2029. That would mean the overall value added by the sector to the economy falls to £16billion – £13billion lower than it would have been.
The Treasury would see its North Sea tax take continue to rise until 2026 before declining compared with the current scenario, OEUK found, meaning it would ultimately collect £12billion less in taxes cumulatively over the five-year period.
Whitehouse said: ‘For more than two years UK oil and gas operators have paid three times the rate of corporation tax of any other sector. Time is running out to mitigate damage and to avoid escalation.’
A Treasury spokesman said: ‘We are committed to maintaining a constructive dialogue with the oil and gas sector to finalise changes to strengthen the windfall tax.’
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