Billions of pounds of investments marked for UK net zero infrastructure could be diverted if politicians keep threatening to impose windfall taxes, the head of the offshore sector’s trade body will tell conference attendees next week.
The chief executive of Offshore Energies UK (OEUK), Deirdre Michie, is expected to tell the group’s annual conference that new taxes would not just damage company profits but may also drive up the cost of borrowing for new projects, making them more expensive and in some cases unviable.
OEUK has already pointed to a survey of its 400+ members which suggest an estimated £200-250 billion set aside by energy companies to invest in offshore wind farms, hydrogen production plants and carbon capture facilities by 2030, as well as the costs of maintaining oil and gas supplies.
Imposing additional taxes would undermine investor confidence to the extent that we would see investment being moved abroad to projects in other parts of the world, she will warn in a speech to the conference, held in Aberdeen next Tuesday (24 May).
An amendment calling for the tax was put forth by Labour this week, garnering support from MPs across political divides, but the move was ultimately rejected in the House of Commons by 310 votes to 248.
However, observers have said a government U-turn on the decision remains a possibility.
Ms Michie will tell the conference that the energy industry is proud to help build the UK’s low-carbon future, but companies will struggle to raise funding if there is a risk of “random new taxes whenever the industry makes increased profits.”
Deirdre Michie said: “We are worrying about energy prices now, but we should worry about energy supplies as well. The risk of shortages and rationing is already real in Europe. It will become real here too – unless we invest in the North Sea and other offshore resources. The threat to supplies is an issue not just now but for the long-term.”
BP chief executive Bernard Looney made similar statements earlier this month, telling the supermajor’s annual general meeting that “unpredictable” taxes “would challenge investment in home-grown energy”.
The Office for Budget Responsibility has estimated that it will cost £1.4 trillion for the UK to achieve net zero by 2050, with the energy industry expected to provide at least £1 trillion of that money.
And in a letter sent earlier this week, the organisation told ministers that North Sea firms will already contribute £7.8 billion to the UK’s coffers for 2022/23. This is a 20-fold increase on the £400m UK tax paid in 2020-21 when plummeting prices drove most energy firms into massive losses.
“That is why our industry puts a premium on stability in the way it is taxed and regulated. Sudden tax increases make it more expensive to borrow money for big projects – and that can make them unviable,” Ms Michie will say next week.
“We should not risk upending what could be a remarkable British success story for a short-term gain that will fade far faster than the drop in investment that will certainly follow. If investment falls, then production will fall too and the UK will have to buy ever more of its oil and gas from other countries – meaning surging import bills and exposure to future shortages
“Such policy swings risk achieving the opposite of what politicians say they want. A windfall tax now will reduce energy security, undermine the energy transition – and impose huge long-term costs on UK consumers and businesses.”
Recommended for you
