Rishi Sunak is preparing to meet North Sea oil and gas producers that have protested against his planned windfall tax on their profits, as the government also signals it is cooling on proposals to extend the levy to electricity generators.
The chancellor is due to meet industry executives in Aberdeen on Thursday — including from Shell, BP and Harbour Energy — after they hit out at his proposed 25 per cent windfall tax on their profits to partly fund a £15bn package of government support for households struggling with rising energy bills.
The levy is due to raise £5bn in its first year to fund support for families whose energy bills could rise to more than £3,000 a year on average in January, according to estimates by the consultancy Cornwall Insight.
Invitations have been sent to executives at North Sea oil and gas producers to meet a “senior Treasury official” in Aberdeen, and companies were told Sunak is due to make the journey, according to people familiar with the plans.
One person said Sunak is expected to try to smooth relations with the industry, as well as hold a question-and-answer session on the details of his proposed windfall tax. The Treasury declined to comment.
When Sunak announced his windfall tax in May he said he would consult on extending it to electricity generators — such as EDF Energy, RWE and SSE — after they produced what he described as “extraordinary profit” from high wholesale power prices.
But government officials have indicated privately to companies that the levy is now increasingly unlikely to apply to electricity generators.
“The direction of travel is away from a windfall tax on generators because the sector is just too complex and it could clobber investment . . . it turns out it’s just too complex to work out who has made how much excess profit,” said one person familiar with the discussions.
Although Labour had been pushing for a windfall tax on North Sea oil and gas producers for months, the details of Sunak’s levy took the industry by surprise when they were unveiled.
The sector had been expecting a one-off hit but the levy will remain in place until the end of 2025 unless oil prices fall back towards what the government regards as “historically more normal levels”, expected to be around $65 a barrel. Brent crude is currently trading at around $114 a barrel.
Sunak’s windfall tax also circumvents existing incentives meaning companies that had expected to use losses incurred during previous years to avoid a tax bill in 2022 will now find themselves subject to the 25 per cent levy.
Although Sunak included in the levy a new investment allowance designed to incentivise companies to press ahead with new projects, the industry has warned the windfall tax is already triggering a rethink of some proposed developments in UK North Sea waters.
These would be vital to achieving the government’s goal of maximising domestic oil and gas production following Russia’s invasion of Ukraine.
Oil and gas producers have been lobbying for a number of changes to the levy including allowing companies to use investments made during the coronavirus pandemic to offset their tax bills.
North Sea trade body OEUK on Tuesday warned the windfall tax would harm investment. “New taxes dent investor and industry confidence,” said Jenny Stanning, external relations director at OEUK.
Source: Financial Times