The government has wobbled on the oil and gas windfall tax, reflecting a growing government concern about the effect of the 75% marginal rate on a sector that supports over 200,000 jobs.
It is worth pointing out that the promised relief is dependent on fossil fuel prices falling beyond a certain level for two consecutive quarters before the policy ends in 2028.
The Office for Budget Responsibility’s forecasts suggest this won’t happen, rendering the new position more of a gesture than a genuinely significant shift.
But it is still a wobble.
They only had to look at Harbour energy, the North Sea’s largest independent oil and gas producer.
It reported almost no after tax profit in 2022, prompting it to scale back investment, cut its workforce and diversify overseas with a focus on the US.
In a statement today the oil and gas industry lobby group Offshore Energies UK drove the point home, saying: “This is a step in the right direction, but many more will need to be taken to restore confidence to our sector.
“Enabling continued UK energy production now and in future depends on a predictable and fair fiscal environment.
“As we build the future there is no simple choice between oil and gas or renewables.
“The reality is we need both. In the mid-2030s, oil and gas will still provide 50% of our energy needs.”
A political offering
The softening of the windfall tax could also serve a political purpose, extending what looks like a peace offering after Labour announced it would end new oil and gas licensing in the UK.
That policy drew swift condemnation from unions who described it as “naive”, poorly thought through, and at risk of creating a cliff edge for the industry.
Still, the government’s announcement today will create its own backlash.
The renewables industry has also been pushing hard for better incentives and long-term certainty, arguing that without more investment and changes to planning regulations, companies will shift to the US and EU where it is now easier and cheaper to do business.
Tessa Khan, executive director of campaign group Uplift, said: “This is the wrong decision by the chancellor and shows that he is prepared to put the interests of profiteering oil and gas companies ahead of the British public.
“Everyone knows these oil and gas companies are still making huge profits, while households and ordinary businesses struggle with unaffordable energy bills, and while the climate crisis accelerates all around us.
“The UK must not revert to the days, not so long ago, when it was offering one of the most generous tax environments in the world for large oil and gas projects.
“So much so that it has routinely meant hugely profitable firms were receiving net payments from UK taxpayers. Even last year, with a windfall tax, Shell paid its CEO more than it paid the UK in tax.”
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