Concerns are mounting over the UK government’s proposed increase in the windfall tax on oil and gas companies, triggering fears of significant economic repercussions.
- The Treasury plans to raise the Energy Profits Levy from 35% to 38% in November and extend its duration until 2030, heightening industry apprehensions.
- OEUK warns that the increased tax could lead to a drastic reduction in investment and a significant loss of jobs, impacting the sector’s role in economic growth.
- Business confidence is declining as uncertainties around tax hikes and employment rights cast a shadow over the UK’s business climate.
- The upcoming budget has prompted calls for policy designs that bolster business confidence and investment, amid mixed economic signals.
The UK government’s decision to increase the Energy Profits Levy (EPL) from 35% to 38% by November is causing concern within the oil and gas sector. Additionally, plans to extend the tax until 2030 have intensified the industry’s unease. Currently, firms already face a complex tax structure comprising a 30% corporation tax and an additional 10% supplementary rate, resulting in a total tax burden of 78% on profits from November.
OEUK, representing the sector, argues that these measures will severely hinder the industry’s ability to drive economic growth, a primary government objective. Their analysis suggests an immediate £2 billion increase in tax revenue is overshadowed by an anticipated long-term £12 billion loss. Further, OEUK predicts a stark drop in investments, from the current £14 billion to a mere £2 billion by 2029, risking 35,000 jobs due to postponed projects.
David Whitehouse, CEO of OEUK, criticized the government’s approach, noting, “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.” Initially, the EPL was implemented as a temporary measure to counteract rising household energy costs due to the oil and gas price surge, conditions which OEUK believes no longer justify the tax’s continuation and escalation.
The government’s stance remains firm, however, as a Treasury spokesperson emphasized their commitment to engage with the oil and gas sector constructively. They affirmed that the forthcoming modifications aim to enhance the windfall tax responsibly, facilitating a phased transition for the North Sea’s economic activities. Moreover, the government anticipates its plans, including a new National Wealth Fund and Great British Energy initiatives, will generate numerous future jobs.
Concurrently, business confidence is receding amidst escalating concerns over tax increases and stricter employment regulations, according to Anna Leach, Chief Economist at the Institute of Directors (IoD). The IoD’s Directors’ Economic Confidence Index saw a notable downturn in August following a peak in July, with declining investment intentions, revenue, and headcount expectations paralleling the situation.
The CBI Growth Indicator survey corroborates this cautious sentiment, forecasting modest private sector growth in the upcoming months. Alpesh Paleja, CBI’s Interim Deputy Chief Economist, highlighted the mixed economic landscape, characterized by challenges for consumer-facing businesses and stagnant manufacturing. As the budget announcement nears, Paleja has called for critical measures such as business rates reform and a coherent tax roadmap to attract necessary investments.
The UK’s proposed tax adjustments have raised significant concerns, with potential economic and employment repercussions, calling for strategic policymaking to support growth.
