Critics say Rishi Sunak, the chancellor, will only raise a fraction of the planned £5bn if new investments are offset by profits.
According to a thinktank, North Sea oil and gas companies that have already benefited from large tax breaks could apply new rules to reduce the amount they pay under a new Windfall Tax announced in Rishi Sunak’s £15bn cost to living package.
The chancellor may raise a fraction of what he expects from this complex scheme, which allows the cost of new investments to be offset by profits. If oil and gas companies seize the opportunity to drastically reduce their contribution to government, said the left-of-centre Common Wealth.
This warning comes after Liberal Democrats claimed that the chancellor’s refusal to introduce a windfall income tax until last week meant that he missed £3bn in the “extraordinary profits”, reported by oil and natural gas companies in 2021, and another £8bn this fiscal year.
Christine Jardine, Liberal Democrat Treasury spokesperson, stated that Sunak’s 25% windfall tax of oil and gas company profits in the “11th hour”, allowed them to continue “business as usual” and directed most of their profits towards shareholders.
It’s not surprising that the chancellor has waited until the last minute to tax big oil, gas and other energy sources. This was when the Liberal Democrats first proposed a windfall tax in October. It appears that it might not raise the amount he promised. This is more levy-lite than windfall taxes.
She accused the chancellor “of being soft on large companies that make a killing from a crisis.”
The Oil giants BP and Shell expect to make a combined profit in excess of £40bn due to the rocketing prices of petrol and diesel.
Jardine said, “He chose not to leave billions on a table that could have been used as support while slamming families instead of with unfair tax increases. This shows how out of touch he is and the Conservatives with those who are in pain.
Common Wealth stated that North Sea oil and natural gas companies currently benefit from subsidies to pay for the cost of drilling new wells or decommissioning existing ones.
The New Economics Foundation conducted research that found that British-based firms were given tax breaks of approximately £3.1bn and £2.5bn, respectively. According to the thinktanks, most of the funds went to shareholders in share-buy-back programs.
The Treasury has not determined how much of the £5bn extra tax might be lost if North Sea operators claim additional investment allowances in the next three years.
Labour claimed that there was no consultation with the industry prior to Thursday’s Sunak statement. This revealed that plans were made in haste and intended to distract from the Partygate scandal.
Shadow chancellor Rachel Reeves proposed a 10% tax increase on North Sea profits for an additional year to raise between £2bn & £3bn. Jardine proposed a 25% tax in October last year, which was in line with the scheme of the chancellor, but without the tax cuts offered by the Treasury.
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