Concerns over the UK government’s plans to increase the windfall tax on oil and gas companies have led to predictions of job losses, reduced investment, and a significant economic impact.
- The Energy Profits Levy is set to increase from 35% to 38% in November, impacting UK oil and gas firms’ profits with a total tax rate reaching 78%.
- OEUK warns that these tax changes could result in a loss of £12 billion in tax receipts and a decline in investment by 2029, jeopardizing 35,000 jobs.
- Anna Leach from the Institute of Directors highlights a sharp decline in business confidence due to tax hike discussions and sees drops in investment intentions, revenue, and headcount expectations.
- The CBI’s Growth Indicator survey reflects a mixed outlook for the coming months, with calls for measures to reduce costs and a clear business tax roadmap to attract investment.
The UK Treasury’s plan to increase the Energy Profits Levy (EPL) from 35% to 38% is raising significant concerns across the oil and gas sector. Already taxed heavily, UK energy companies will face a combined tax rate of 78% on profits as of November. This situation arises as the government attempts to extend the levy until 2030 and tighten investment allowances, previously providing tax relief through investments in North Sea projects.
The overarching concern shared by the Oil & Gas UK (OEUK) is that the increased tax burden may ultimately hinder the sector’s contribution to economic growth. David Whitehouse, OEUK’s Chief Executive, remarked that this policy direction contradicts the government’s main priority of fostering economic growth. OEUK’s analysis outlines a short-term gain of £2 billion but forecasts a £12 billion loss in tax receipts and a dramatic drop in investment from £14 billion to £2 billion by the year 2029. Such reductions are expected to endanger 35,000 jobs due to stalled projects in the industry.
The EUK levy, initially intended as a temporary measure during a period of high oil and gas prices, is now seen as less justified by OEUK. As David Whitehouse noted, the “windfall conditions” have waned, questioning the necessity of prolonging and expanding the tax.
Business sentiment is unquestionably affected, as stated by Anna Leach, Chief Economist at the Institute of Directors (IoD). Leach indicates a notable decline in the IoD’s Directors’ Economic Confidence Index, reflective of broader pessimism about the UK economy. With investment plans seeing unprecedented declines since the Covid-19 lockdowns, firms are urging the government to carefully consider long-term policies to boost business confidence and investment.
Similarly, predictions from the CBI Growth Indicator survey suggest moderate growth over the next few months, although the economic landscape is described as “very mixed” by Alpesh Paleja, CBI’s Interim Deputy Chief Economist. Paleja calls for reforms, particularly long-awaited changes to business rates and a formal business tax framework, to encourage investment and support sustainable growth.
The UK’s proposed tax changes face criticism for potentially jeopardizing economic growth and employment within the oil and gas sector, reflecting broader concerns about business confidence and investment.
