LONDON: The United Kingdom could raise an additional £15bil in tax revenue from oil and gas production over the next decade if Prime Minister Andy Burnham’s government brought forward its new fiscal regime to next year, according to an industry lobby group.
Replacing the United Kingdom’s windfall tax with a permanent price-triggered mechanism in 2027, rather than waiting until March 2030 as currently planned, would boost investment and production, supporting employment in the industry, Offshore Energies UK (OEUK) said.
That could bring in £2.4bil more in taxes on the oil and gas industry through 2035, with a further £12.6bil from additional payroll taxes, according to the group’s annual economic report.
Growing the UK’s tax revenue has become a key issue for the government amid rising borrowing costs, uncertainty over the new prime minister’s spending plans and concerns about inflation triggered by the Iran war.
Chancellor of the Exchequer, John Healey, may face some difficult choices in his debut budget scheduled for the end of October.
“These additional revenues will provide the Exchequer with greater flexibility, offering sufficient funding to eliminate fuel poverty across the United Kingdom or support household adoption of low-carbon technologies,” Ben Ward, market intelligence manager at OEUK, said on Monday.
The current windfall tax, called the Energy Profits Levy (EPL), was introduced in 2022 by the previous Conservative government after Russia’s invasion of Ukraine sent energy prices soaring.
It was extended and increased both by that administration and when the Labour Party came to power in 2024.
The industry has blamed the EPL and Labour’s ban on new exploration drilling for a downturn in North Sea oil and gas investment.
Several companies have reassessed their UK activities and opted to sell, merge or scale back operations.
BP Plc, the last remaining global oil major to have its own standalone North Sea business, said last month it is working to exit the area.
The UK’s ageing North Sea basin needs “a competitive, progressive and stable regime that promotes investment”, OEUK said.
The longer it takes to implement the Oil and Gas Revenue Levy that will eventually succeed the EPL, “the less impact fiscal change will have”.
OEUK reiterated that faster changes in the tax regime and “a pragmatic approach to licensing” that prioritises domestic production instead of imports could unlock 111 additional projects and £50bil of private capital investment that would almost double the United Kingdom’s oil and gas production over the next 25 years.
“Our operators have clearly shown a willingness to invest, with projects that could begin delivering new domestic oil and gas within months should we see an announcement” in the next budget, Ward said.
That would allow the United Kingdom to produce as much as 288 billion cubic m of gas, or 64% more than currently projected, from 2025 to 2035, allowing the nation to cover half of its needs and significantly reduce the share of liquefied natural gas imports, which have been significantly affected by geopolitical uncertainty, according to the report. — Bloomberg
