The government’s changes to the windfall tax will have a £13bn hit to the economy and generate lower tax revenues, an analysis from the body responsible for promoting North Sea energy firms’ interests has warned.
The data from Offshore Energies UK (OEUK), which compares the previous administration’s Energy Profits Levy (EPL) with the new government’s more stringent proposals, predicts capital investment to nosedive from £14.1bn to just £2.3bn over the government’s five-year term.
The new windfall tax will also put 35,000 jobs at risk, the body claimed, because projects that might have gone ahead under the previous regime will no longer be financially viable.
The government has claimed that the hikes will help fund the establishment of its new, state-owned energy company GB Energy. But the OEUK analysis claims the hit to economic activity in the sector will be so big that tax receipts from the levy will fall despite the rate of tax going up and allowances being closed under the new plans.
It was originally levied at 60 per cent but was then raised to 75 per cent.
Labour plans to raise it again – to 78 per cent – and also remove the previous policy’s provision that any money spent on investment and exploration would not be taxed under the EPL.
David Whitehouse, chief executive of OEUK, said: “The Prime Minister has said that the Budget will be painful. This industry recognises that difficult decisions will need to be made.
“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 warning comes just weeks after more than 40 companies with operations in the North Sea voiced their “grave concern” with the Starmer administration’s proposals in an open letter.
Signatories included the area’s energy firms, but also the likes of Wood Group and Sodexo, which were concerned that contracts they had with the sector would dry up, causing job losses.
A Treasury spokesman said: “We are committed to maintaining a constructive dialogue with the oil and gas sector to finalise changes to strengthen the windfall tax, ensuring a phased and responsible transition for the North Sea.
“Our plans for a new National Wealth Fund and Great British Energy will unlock investment and create thousands of new jobs in the industries of the future.”