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Windfall taxes will bring the UK short-term gain followed by long-term pain – from reduced energy security and higher prices, warns Offshore Energies UK chief executive

24 May 2022

A windfall tax on the UK’s offshore oil and gas operators would risk undermining the nation’s energy security and sharply slowing progress to net zero, Offshore Energies UK’s chief executive has warned in a keynote speech.

Sudden new taxes risk destabilising the industry, deterring investors and slowing or even halting some of the major projects that would maintain UK energy supplies, Deirdre Michie said in a speech to OEUK’s annual conference in Aberdeen today (Tuesday May 24).

The conference brings together business leaders from across the UK’s offshore operators and their supply chains, covering energies including oil, gas and offshore wind, plus the nascent technologies of mass hydrogen production and CO2 capture and storage.

Michie referred to the North Sea Transition Deal, the landmark agreement signed with the UK government last year, which set out the basis of a multi-decade project to decarbonise the UK’s energy systems, reaching net zero by 2050.

She said the industry regarded the deal as the start of a long-term partnership with the governments of the UK, with the wider offshore sector willing to invest up to £250 billion by 2030.

Deirdre Michie, OEUK chief executive

She warned, however, that the 2050 target for carbon neutrality was one of the most ambitious of any country, and required long-term planning backed by stable and predictable tax and regulatory regimes – and mutual trust.

A windfall tax, she warned, would deter investors, drive up the price of borrowing and risk delaying or halting major projects. She pointed out that the UK’s offshore oil and gas operators were already expected to pay £7.8 billion in net tax on profits this year, plus another £5 billion next year.

In her speech Michie said: “Partnerships are, of course, two way and built on trust. The prime minister has made it very clear that the government’s continued trust and support is dependent on us investing across all the energies, including in oil and gas.

“And our industry is fully aligned on this, with particular support coming from our supply chain – who in an open letter yesterday to the PM and Chancellor,  made clear their backing for fiscal stability and predictability for the sector.

“However, there is a challenge in terms of timescales. Our industry, given the complexities we have to deal with, has to think and invest in terms of years and often decades.

“Politicians, the media and campaign groups, however, operate on much shorter pressures and deadlines, whether they be impending elections, copy deadlines or fund raising.

“As a result, it means we are now facing the threat of punitive taxes and regulations, just at a time when the UK needs to focus on long-term issues like energy security and working for net zero.

“Much of this is really well-intended. Because the reality check for everyone, with millions of households in fuel poverty, is that there is an unprecedented cost-of-living crisis to pay for, at the same time as we have an environmental emergency to deal with.

“But our belief is that stability in the way we are taxed and regulated is what allows us to promote investment, create jobs, and generate taxes that can be used to help with  the cost of living crisis, while at the same time,  getting the balance right in terms of ensuring  the nation’s energy security.  

“Indeed, the OBR is already forecasting that, because of the current fiscal regime, our operators will pay over £7.8bn to the Exchequer this financial year. That’s a  20-fold increase on two years ago and equates to £279 per UK household.

“At the same time, our sector’s combined investment potential,  to support energy security and underpin the transition could be worth up to £250bn between now and 2030.

“Its an extraordinary combination that other counties can only dream of!

“But the threat of sudden new taxes could undermine this  – disrupting what could be a remarkable British success story.

This graphic is free to use but please source to OEUK

“And for what? Quick headlines, short term political gain, a minimal uptick in tax – the benefits of which would actually fade far faster than the damage such a tax could do with declining investment and production levels, that will almost certainly follow.

“Because such unexpected policy swings, risk achieving the opposite of what politicians say they actually want and could result in undermining energy security and ultimately the energy transition itself.”

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