The UK’s oil and gas industry will pay £7.8 billion in taxes this year – a significant boost for the UK Treasury and roughly equal to 1% of the nation’s entire tax revenue Offshore Energies UK (OUEK) has told the government.
It has written to Kwasi Kwarteng, the energy secretary, setting out the sector’s latest responses to the cost-of-living crisis caused by the global surge in energy prices – and its concerns over the consequences of a windfall tax.
The £7.8bn tax payments for 2022-23, predicted by the Office for Budget Responsibility, are equivalent to about £279 per UK household.
They also represent a 20-fold increase on 2020-21. Back then, plummeting demand and prices saw most energy companies make multi-billion-pound losses, contributing to a UK tax take of just £400m from the UK offshore oil and gas sector.
The recent surge in global energy prices has reversed that trend. OEUK’s letter points out that the existing 40% tax rate imposed on the UK’s offshore oil and gas operators – the highest rate of any industry – means the Exchequer is already among the biggest beneficiaries.
The UK also benefits from the 195,000 jobs supported by the offshore energy industry and from having its own supplies of oil and gas – making it less vulnerable to global shortages.
It means the UK’s oil and gas operators are boosting both the nation’s energy security and its tax revenues. The OBR’s Economic and Fiscal Outlook from March 2022 also predicts that the Treasury will earn another £4.8 billion from the UK’s offshore oil and gas operators in 2023/24.
Commenting on the letter, Deirdre Michie, OEUK’s chief executive, said: “We are deeply concerned about the difficult circumstances facing UK consumers and our industry is committed to supporting the nation now and building a low-carbon future.
“We are proud that we are able to help by contributing a predicted £7.8 billion in UK taxes this year alone. Those payments, equivalent to £279 per home, can help the government soften the pressure for households. This year is not a one-off. Between 2021 and 2026-27 the OBR predicts our industry will pay around £23 billion in UK tax.
“This also shows the wider value of our industry to the country. Many European countries are facing energy shortages and the risk of energy rationing. The UK’s offshore resources, oil, gas and offshore wind, are helping protect us from similar crises. They boost our energy security as well as the Exchequer.
“Our industry and its supply chains also support 195,000 workers – whose skills are going to be essential in building the low-carbon and renewable energy systems that will enable the UK to reach net zero.
“These are huge long-term investments with many risks, especially around swings in the prices of gas and oil. The downturn in 2020/21, for example, saw many of our members incurring significant losses.
“That is why our industry puts a premium on stability and predictability in the ways it is taxed and regulated. Tax increases make it more expensive to borrow money for big projects – and that can make them unviable. It’s why periods of fiscal stability are associated with increased investment, whereas sudden tax increases are often followed by decreased investment. “Energy security should now be seen as part of national security. We look forward to supporting the UK on its path to a more secure and lower-carbon future – and to the government’s continuing support for our industry.”
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