Oil firms hit out at UK’s ‘fiscally unstable and complicated’ regime

Oil and gasoline producers have branded the UK some of the “fiscally unstable” regimes through which to do enterprise, as chancellor Jeremy Hunt examines an extra enhance in windfall taxes on fossil gasoline firms.

In a letter seen by the Monetary Occasions, an business group representing 20 British oil and gasoline firms — together with top-10 producers Harbour Vitality, Ithaca Vitality and Neo Vitality — informed Hunt that larger windfall taxes would put in danger the sector’s “urge for food and monetary potential” to put money into new initiatives.

Hunt is assessing a 5 proportion level enhance within the power income levy (EPL) to 30 per cent as he seeks to search out as much as £54bn of financial savings forward of the Autumn Assertion on November 17.

The EPL was launched by then chancellor Rishi Sunak in Might this yr, elevating the oil and gasoline sector’s headline fee of tax to 65 per cent from 40 per cent. The levy is because of expire on the finish of 2025, however Hunt can also be taking a look at extending it till 2028.

In its letter, the Affiliation of British Unbiased Exploration Firms (Brindex) mentioned the EPL had “already created long-lasting fiscal uncertainty and elevated the UK to some of the fiscally unstable and complicated regimes to do enterprise in”.

“Yet one more change to the tax regime, in only a matter of months, could be disastrous to the sector,” Robin Allan, Brindex’s chair, wrote, including that uncertainty about what could be introduced on November 17 was “serving to drive funding out of the UK”.

A variety of western governments, together with the US and in Europe, have threatened or introduced larger taxes on oil and gasoline producers, which have reported bumper income on the again of a surge in commodity costs following Russia’s invasion of Ukraine.

However the UK authorities is in a troublesome place: it’s concurrently asking oil and gasoline teams to spice up manufacturing within the North Sea to bolster home power safety, and faces a backlash from a few of these teams because it weighs uprating and increasing the EPL after simply six months.

Some oil majors, comparable to Royal Dutch Shell, have acknowledged they have to play their half in easing value of residing crises.

However Allan mentioned Brindex’s members had been “disproportionately” affected by the EPL, as they lacked the majors’ international attain in addition to massive, extremely worthwhile buying and selling arms that aren’t affected by the windfall tax.

The affect of smaller oil and gasoline producers, typically backed by personal fairness corporations, that Brindex represents has elevated over the previous eight years as majors have offered out of the mature North Sea or shrunk their portfolios to give attention to lower-cost areas.

Brindex’s members additionally embrace Serica Vitality, which is answerable for 5 per cent of the gasoline produced within the UK per yr.

Allan urged Hunt to not water down a beneficiant funding allowance launched by Sunak in Might, which permits firms to entry an general 91p tax saving for each £1 they put money into UK fossil gasoline initiatives.

“Any modifications to the supply and fee of the funding allowance could be yet one more blow to the sector’s already weakened confidence within the UK tax regime,” he wrote.

The Treasury didn’t instantly reply to a request for remark.