The UK’s leading industry body for offshore energy has defended the continued inclusion of investment relief within the windfall tax.
Mike Tholen, sustainability director at Offshore Energies UK (OEUK) told City A.M. that development of the North Sea was needed now to ensure secure supplies of domestic energy, which would help ease household bills and reduce the country’s dependence on overseas imports.
This included boosting domestic energy generation, including offshore wind and North Sea oil and gas operations.
He said: “If we want to ensure secure supplies of energy we need to invest in our own resources, meaning oil and gas in the short-term but increasingly in low carbon energy sources like wind and hydrogen. This will help avoid paying even more to import energy while also supporting companies here already driving the race to produce more energy.”
North Sea oil and gas exploration was a key feature in the Government supply security strategy, announced in April earlier this year.
Downing Street is keen to ensure the UK is less vulnerable to geopolitical shocks and unreliable overseas trading partners following Russia’s invasion of Ukraine.
Tholen also suggested soaring energy prices was a global phenomenon, which meant the industry was now paying record amounts of taxes.
He said: “The increase in profits is because there’s been a big increase in global prices. While we can’t influence this, those profits also mean we are paying a lot more taxes. The UK offshore industry is now paying the highest rate of tax in its history and should be contributing £12-13bn to the Treasury this year alone.”
Labour puts pressure on Government to toughen windfall tax
Currently, the Energy Profits Levy includes 91 per cent investment relief for North Sea oil and gas operators that invest in domestic energy projects.
It is part of the Government’s carrot and stick approach, with fossil firms otherwise exposed to a further 25 per cent levy on their profits.
However, after Shell reported record quarterly profits of £9.5bn while Centrica enjoyed massive earnings of £1.34bn for its full year, the Labour Party has called for the investment relief to be scrapped amid record profits for energy companies.
Shadow Climate Change Secretary Ed Miliband urged the Government to re-think investment relief included in the windfall tax for fossil fuel companies.
He described it as an “an obscene decision when families are facing a true cost of living emergency.”
This was echoed by BEIS Committee Chair and Labour MP Darren Jones, who urged the Government to prevent oil and gas companies using their record profits to drill for more oil and gas.
Instead, he argued the money should be funneled into further support for bill payers this winter.
Forecasts for the consumer price cap, which establishes the highest price the average energy consumer should pay for their energy, have spiked this week, with predictions rising to £3,500 per year this October and £3,850 in January.
Meanwhile, Tory Leadership contender Liz Truss insisted it was “not time for another windfall tax”.
Speaking in Leeds, she said: “What I believe is we need to keep taxes low to attract investment into industries. We need to turbocharge investment into the North of England, bringing more businesses and opportunities.”
Her rival, former Chancellor Rishi Sunak, used the latest bonanza earnings to defend the introduction of the windfall tax earlier this year.
A spokesperson said: “Families will face high energy bills this winter. That’s why Rishi put in place support for everyone with the most help targeted at the most vulnerable. And that support is bought and paid for through the energy profits levy Rishi introduced, which is the fair and right policy given the record profits energy companies are enjoying.”