Rishi Sunak has been warned that a windfall tax on energy firms would see higher prices and do long-term damage to the oil and gas industry.
Offshore Energies UK (OEUK), which represents the offshore oil and gas industry, issued the warning amid speculation the Chancellor is set to implement the one-off tax on the profits of the energy companies.
Deirdre Michie, chief executive of the body, said: “This is an industry that thinks and plans long-term, so sudden new costs, like this proposed tax, will disrupt planning and investment and, above all, undermine investor confidence.”
Profits of energy companies have been boosted by the surge in oil and gas prices in the wake of Russia’s invasion of Ukraine.
Critics have argued energy firms are benefiting from a spike beyond their control and a year-long, one-off levy on their profits could help pay to support squeezed households.
But Ms Michie said it was already the country’s most highly taxed industry, paying 40% on their offshore profits, and operators would send the Treasury £7.8 billion this financial year. This, she said, was equivalent to £279 per household.
She added that the industry was “actually very proud to pay our taxes” but warned “the problem is when new taxes are imposed suddenly and without consultation”.
“The UK offshore industry needs a stable and predictable regime. A windfall tax may not affect projects already under way – but is likely to deter investments under consideration, for which funds have yet to be committed,” she said.
“The result would be a decline in oil and gas production in years ahead – just when the UK most needs reliable sources of energy.”
Mr Sunak told the House of Commons last week the UK Government “do not believe that windfall taxes are the simple and easy answer to every problem”.
“However, we are pragmatic, and we want to see our energy companies, which have made extraordinary profits at a time of acutely elevated prices, investing those profits back into British jobs, growth and energy security,” he said.
“I have made it clear and said repeatedly that, if that does not happen soon and at significant scale, no option is off the table.”