Energy tax hike plans put ‘thousands’ of jobs at risk, offshore industry warns

Plans to increase UK tax on energy companies will put thousands of jobs at risk and undermine the country’s progress towards net zero emissions, an industry body has warned.

At the end of July, the government confirmed that it would increase the energy tax on ‘exceptional’ income from November.

This increases the tax rate from 35 to 38 percent and the nominal tax rate for upstream oil and gas activities increases to 78 percent.

The government also plans to abolish an “unfairly generous” investment deduction and reduce the amount of investment deduction taken into account when calculating tax-related profits.

In an open letter to the UK Treasury, seen by This is Money, Offshore Energies UK (OEUK) said the plans would harm “tens of thousands of people whose jobs depend on oil and gas, wind, hydrogen and carbon capture projects”.

The EPL was introduced after Covid measures were relaxed and Russia’s invasion of Ukraine led to rising energy prices and huge profits for oil and gas companies.

Initially, the rate was set at 25 percent, on top of the 40 percent tax the industry was already paying. In January last year, it was increased to 35 percent by then Chancellor of the Exchequer Jeremy Hunt.

While the impact has been felt by industrial giants such as Shell and BP, it has severely dented the profits of many smaller London-listed companies such as Ithaca, Serica, Harbour and EnQuest, who have drastically reduced their UK investments as a result.

In a separate statement on Thursday as part of its interim results, Ithaca Energy warned of the “damage that further changes to the fiscal regime could cause to the long-term achievability of the UK’s energy security and carbon reduction objectives”.

OEUK, which represents more than 400 businesses, warned that plans to increase the EPL and cut incentives “put at risk thousands of jobs and businesses vital to the UK government’s industrial strategy and progress towards net zero targets”.

The letter, which includes signatories from manufacturing, engineering and technology companies, calls on the government to work with the sector to “realise the full benefits of a domestic energy transition, supported by jobs, skills and businesses anchored in the UK”.

OEUK told Industry and Decarbonisation Secretary Sarah Jones: “For our businesses, this surprise risks operators – large and small – further scaling back or delaying their investment plans.

‘The impacts will be felt across the supply chain, in jobs and in the communities this industry supports, both directly and indirectly.

‘It is vital that the new government demonstrates a genuine commitment to working with the sector to secure investment and deliver on promises to protect jobs.’

OEUK chief executive David Whitehouse added in a statement: ‘To unlock the full potential of Britain’s world-class businesses over the next 50 years, there is no simple choice between oil and gas or renewables.

“The reality is that we need both to support these businesses, power the country and grow the economy.

‘If oil and gas companies were to scale back their activities as a result of the proposed changes to the Energy Profits Levy, this would have a direct impact on our global supply chain. The impact of the EPL changes would be felt far more broadly than oil and gas companies that pay the levy directly.’

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