UK’s new North Sea oil and gas windfall tax cause an 80% investment slump, OEUK warns
(Bloomberg) – The UK’s new tax system for North Sea oil and gas could lead to an investment slump of more than 80%, an industry lobby group warned.
Changes announced by the new government, including a higher windfall tax and removal of an investment allowance, may mean capital spending on UK projects dwindles to £2.3 billion ($3 billion) from 2025 to 2029, down from an estimated £14.1 billion under the current fiscal regime, Offshore Energies UK said Monday.
Chancellor of the Exchequer Rachel Reeves plans to raise the Energy Profits Levy by 3 percentage points in an effort to fill a £22 billion black hole she said was left by the previous government.
That would bring the headline rate of tax for UK oil and gas producers to 78%. The changes will be finalized in an October budget statement that Prime Minister Keir Starmer has said will be “painful.”
The moves “will trigger an accelerated decline of domestic production and a corresponding reduction in taxes paid, jobs supported and wider economic value generated,” OEUK Chief Executive Officer David Whitehouse said in a statement.
Over the next five years, almost half of the additional oil and gas production that could have got the go-ahead under the current tax system would be uneconomic under the new proposals, OEUK said in a report. That puts more than 35,000 jobs at risk in 2029 due to projects being shelved, the group said.
The plans are already having an impact. North Sea explorer NEO Energy said Monday it will “materially slow down investment activities,” citing the government’s fiscal plans and regulatory uncertainty. The company, backed by Norway’s HitecVision AS, said it can’t yet assess the full impact on its Buchan Horst project, but expects first oil to be delayed.
Chancellor Reeves said the changes to oil and gas taxes, which also include scrapping a 29% investment allowance, would bring in annual revenue of £1.2 billion. OEUK estimated that proposals may yield just £2 billion over the five-year period because of the investment slowdown.
