Concerns are growing as the UK government plans to increase the windfall tax on oil and gas companies.
- The Energy Profits Levy (EPL) is set to rise from 35% to 38% in November, potentially impacting the economic contribution of the energy sector.
- The Offshore Energies UK (OEUK) warns that these changes could lead to significant job losses and reduced sector investment.
- Business confidence in the UK is declining amid discussions of increased taxes and stricter employment rights.
- The Institute of Directors’ Economic Confidence Index showed a sharp drop in August, with decreased investment intentions and expectations.
The UK government’s decision to increase the windfall tax, known as the Energy Profits Levy (EPL), from 35% to 38% is causing apprehension in the oil and gas sector. This increase, effective from 1 November, will result in a total tax rate of 78% on profits for energy companies operating in the UK. In addition, the government plans to extend the levy until 2030 and impose stricter investment allowances, a move expected to adversely affect the sector’s contribution to economic growth.
Offshore Energies UK (OEUK) has expressed concerns regarding the potential repercussions of these tax changes. OEUK’s analysis indicates that the increased levy could bring in an additional £2 billion in the short term but might ultimately result in a £12 billion reduction in tax receipts. The organisation also predicts that investment in the sector could fall dramatically from £14 billion to just £2 billion by 2029, placing approximately 35,000 jobs at risk due to halted projects. OEUK’s Chief Executive, David Whitehouse, highlighted the contradiction in the government’s policy: “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 EPL was initially introduced in May 2022 as a temporary measure to alleviate the impact of soaring energy prices on households. However, OEUK argues that the initial conditions justifying the windfall tax no longer exist, rendering the proposed extension and expansion unjustified.
The Treasury has responded by emphasising its commitment to engaging in constructive dialogue with the oil and gas industry to finalise changes. According to a Treasury spokesperson, the goal is to strengthen the EPL while facilitating a phased and responsible transition for the North Sea. Plans for a new National Wealth Fund and Great British Energy are also underway, aiming to create thousands of jobs in emerging industries.
Meanwhile, business confidence across various sectors in the UK is wavering due to the anticipation of tax increases and stricter employment regulations. Anna Leach, Chief Economist at the Institute of Directors (IoD), notes a decline in the IoD’s Directors’ Economic Confidence Index since a peak in July. This decline represents the steepest drop in investment intentions and a decrease in revenue and headcount expectations since the onset of the Covid-19 pandemic.
Additionally, the Confederation of British Industry (CBI) Growth Indicator survey reflects a mixed outlook for private sector growth in the upcoming months. Alpesh Paleja, the CBI’s Interim Deputy Chief Economist, pointed out the need for reforms to reduce costs, such as business rates, and to provide a clear business tax roadmap to bolster investment. “All this can help to deliver the return to long-term sustainable growth that the new government has promised, and firms across all sectors want to see,” Paleja added.
The anticipated changes in energy taxation continue to challenge the UK’s business landscape, with broader impacts on economic confidence and investment outlook.
