The UK’s oil and gas sector has raised alarms over the government’s proposed increase in the windfall tax, with warnings that it could stifle investment and negatively impact the economy. Offshore Energies UK (OEUK) has voiced concerns that the upcoming rise in the Energy Profits Levy (EPL) will lead to a significant £13bn economic loss from 2025 to 2029 and place around 35,000 jobs in jeopardy.
The industry’s caution comes amid broader concerns about the UK’s business climate, as discussions about tax hikes and stricter employment rights have caused a decline in business confidence.
Windfall Tax Increase: The Impact
Under current government plans, the windfall tax on the profits of oil and gas companies operating in the UK is set to rise from 35% to 38% on 1 November. This increase, applied to profits made in the North Sea, comes on top of the existing 30% corporation tax and a 10% supplementary rate. Altogether, the tax rate on energy companies’ profits will soar to 78%.
This rise also comes with an extension of the levy until 2030 and tighter rules on investment allowances, reducing the tax benefits for companies investing in projects such as green energy in the North Sea.
David Whitehouse, CEO of OEUK, expressed concern, stating, “This is a government prioritising economic growth, yet its policy could reduce the sector’s contribution to the UK economy.”
Job Losses and Investment Decline
OEUK’s analysis paints a bleak picture for the energy sector, forecasting an initial £2bn increase in tax receipts. However, this will likely be followed by a £12bn loss due to a significant reduction in investment, dropping from £14bn under the current policy to just £2bn by 2029.
The potential consequences are stark: an estimated 35,000 jobs could be lost by 2029, with many energy projects shelved due to the unattractive tax environment.
Broader Economic Concerns
The oil and gas sector isn’t the only industry expressing concerns. A recent report from the Institute of Directors (IoD) noted that talks of tax hikes and employment regulations have dented business confidence across the board. The IoD’s Economic Confidence Index, which reached a three-year high in July, dropped significantly in August.
Anna Leach, Chief Economist at the IoD, commented, “The surge in business leader confidence we saw earlier this year has been dampened. We’re urging the government to focus on long-term policies that promote stability, tax clarity, and a supportive framework for investment.”
A Mixed Economic Outlook
The Confederation of British Industry (CBI) has reported mixed results for the private sector. While some businesses expect modest growth in the next three months, sectors like manufacturing and consumer-facing industries continue to struggle.
Alpesh Paleja, interim Deputy Chief Economist at the CBI, expressed hope for positive developments, calling for policies that reduce costs for businesses and create a roadmap for sustainable growth. He noted that long-awaited business rates reforms and clear tax policies could help turn the situation around.
As the government prepares its autumn Budget, the focus remains on striking a balance between boosting public finances and ensuring that businesses continue to invest and thrive in the UK economy.
