Increasing the windfall tax on Britain’s oil and gas companies could undermine the government’s aim to boost economic growth, according to industry body Offshore Energies UK (OEUK). The group warns that the planned tax increase could reduce investment, resulting in a £13 billion loss to the UK economy between 2025 and 2029 and putting 35,000 jobs at risk.
The Treasury Department has responded by reaffirming its commitment to a “constructive dialogue” with the oil and gas industry on proposed changes to the Energy Profits Levy (EPL), the official name of the windfall tax. The EPL will rise from 35% to 38% on November 1 and targets the profits of UK oil and gas companies, which already face a unique tax structure with a 30% corporation tax and a 10% additional rate. This means that energy companies operating in Britain will see a total tax rate of 78% on profits from November.
The government also wants to extend the levy until 2030 and tighten the investment deduction, which previously allowed companies to reduce their tax burden by investing in North Sea projects, including green energy initiatives. OEUK says these changes would reduce the sector’s ability to support economic growth, a key priority for the government.
OEUK’s analysis shows that while the increased tax could raise an additional £2 billion in the short term, it would ultimately result in a loss of £12 billion in tax revenue. The industry body also predicts a sharp drop in investment, from £14 billion under current policies to just £2 billion in 2029, putting 35,000 jobs at risk in the same year due to abandoned projects.
David Whitehouse, Chief Executive of OEUK, criticized the government’s approach: “This is a government that has made economic growth its main priority and yet our analysis shows that its policies will ultimately reduce the sector’s contribution to the UK economy .”
The EPL was introduced in May 2022 in response to rising oil and gas prices and was intended as a temporary measure to ease household energy bills. OEUK argues that the initial “windfall conditions” no longer exist, meaning the extension and extension of the tax is not justified.
A Treasury spokesperson reiterated the government’s position, stating: “We are committed to maintaining a constructive dialogue with the oil and gas sector to finalize changes to strengthen the windfall tax to ensure a phased and responsible transition for the North Sea. Our plans for a new National Wealth Fund and Great British Energy will create thousands of new jobs in the industries of the future.”
Meanwhile, business confidence is wavering as talk of tax rises and tougher employment rights dampens the UK business environment, according to Anna Leach, chief economist at the Institute of Directors (IoD). After hitting a three-year high in July, the IoD economic confidence index fell sharply in August. Investment intentions have fallen the most since the start of the Covid-19 lockdowns, while expectations for turnover and workforce have also fallen.
“We call on the government to take the time to get the long-term policy design right, and to deliver the stable tax and policy framework needed to boost business confidence and investment,” Leach urged.
In addition to the cautious outlook, the CBI Growth Indicator survey showed that private sector companies expect modest growth in activity in the three months to November. However, CBI interim chief economist Alpesh Paleja described the overall picture as “very mixed”, with consumer-facing businesses struggling and manufacturing momentum remaining sluggish.
As the October 30 budget approaches, Paleja called for measures to reduce costs, such as the long-awaited business rates reform and a clear business tax roadmap to attract investment. “All this can help achieve the return to long-term sustainable growth that the new government has promised, and that companies across all sectors want to see,” he added.