The UK oil and gas industry will pay about £3 billion in extra Corporation Tax because of the global rise in gas prices – without any need for a windfall tax, the sector’s leading trade body has calculated.
OGUK, which represents the nation’s offshore industry, has analysed how the rise in the price of gas, from an average of 24.9p per therm in 2020 to a spot price peak of 454p per therm in 2021, will benefit the UK Treasury – and taxpayers.
[A therm is 2.8 cubic metres of gas.]
The oil and gas sector’s profits are already subject to corporation tax rates of 40% – double that of all other sectors – so a rise in gas or oil prices always means a bonanza for the UK Treasury.
However, oil and gas companies know that such taxes are coming and so can budget for them in advance.
The one-off ‘windfall tax’ on UK offshore oil and gas operators, proposed by some opposition politicians would, by contrast, send financial shockwaves through the industry, OGUK has warned.
Jenny Stanning, OGUK External Relations Director, said:
“Our industry pays up to 40% corporation tax on its profits – roughly double any other sector. That means that the UK Treasury is already gaining from these price rises.
“It is predicted to get an additional £3 billion in corporation taxes in the two years from last April – making a total of around £5 billion based on Treasury figures. [Actual results could vary depending on market conditions.]
“In the longer-term a windfall tax would be damaging for consumers because it would undermine our competitiveness and discourage energy companies from investing in the UK. That would make us even more dependent on imports from places like Russia and the middle east.
“The UK gets 73% of its total energy from gas and oil. About 24m homes are heated by gas which also generates 42% of our electricity. So, the Europe-wide gas shortages are a stark reminder of why the UK should safeguard its offshore sector – and financial stability is an essential part of that.”