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The UK is raising the windfall tax on the profits of oil and gas operators in the North Sea while also expanding the tax to include low-cost electricity generators in the Autumn Statement of the UK’s budget unveiled by the UK Chancellor of the Exchequer, Jeremy Hunt, on Thursday.
The UK has had a windfall tax on oil and gas firms operating in the North Sea since May, when the current Prime Minister Rishi Sunak, then Boris Johnson’s Chancellor of the Exchequer, announced a temporary 25% Energy Profits Levy for oil and gas companies, reflecting their extraordinary profits as oil and gas prices surged.
Commenting on the new budget measures, Sunak said today that “Today’s Autumn Statement delivers the long-term stability this country needs.”
“The Autumn Statement sets out reforms to ensure businesses in the energy sector who are making extraordinary profits contribute more,” the UK government said.
Thus, the UK is raising the Energy Profits Levy by 10 percentage points to 35% from January 1, 2023, and is extending it to the end of March 2028, from December 31, 2025, as originally planned when the levy was 25%.
The government expects the Energy Profits Levy to raise over £40 billion by 2027-28.
The hike in the levy lifts total oil and gas taxation in the UK to a grand total of 75%, Bloomberg’s energy and commodities columnist Javier Blas noted.
The government is also introducing a new temporary 45% Electricity Generator Levy that will be applied to the extraordinary returns being made by electricity generators. The levy will be introduced from January 1, 2023, and is then forecast to raise around £14.2 billion over the forecast period (2022- 2028). The levy will be applied to groups generating electricity from nuclear, renewable, and biomass sources “who are benefitting from a significant increase in the price received for their output without a corresponding increase in the costs of generation.”
Oil and gas firms and power producers have warned the government for weeks that what was then rumored hikes in windfall taxes would undermine investment in the UK energy system.
“Imposing sudden extra taxes will make it even harder for these companies to invest in UK energy production – both the gas and oil we need today, and the wind, hydrogen and other low-carbon energies we need to reach net zero by 2050,” leading industry group Offshore Energies UK said earlier this month.
Linda Cook, CEO at the leading independent oil and gas producer in the North Sea, Harbour Energy, wrote an open letter to the Chancellor earlier this week, saying that “Should the chancellor levy UK oil and gas companies further — a second time in six months — he risks driving investment out of the UK altogether.”
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com