Jeremy Hunt’s windfall tax for oil and gas giants needs to be diluted in order to prevent industry collapse, Tory MPs warned.
According to the Chancellor, his so-called energy profits tax is “too blunt an instrument” and could “destroy” North Sea production.
This comes amid warnings by companies involved in North Sea oil-and-gas exploration that the high level of taxation is an “existential risk” and could lead to investment becoming “unviable”.
Prime Minister Rishi Sunak and Mr Hunt were criticised for not including enough measures to stimulate economic growth.
Mr Hunt raised the windfall tax for North Sea oil-and-gas producers from 25 per cent to 35 per cent while also announcing that it would be in effect until 2028 instead of 2025 and adding £19.4billion to the existing bill.
MPs believe that energy companies will be subject to higher taxes if they don’t agree on a floor price.
Rebel MPs are currently discussing the possibility of amending the Finance Bill to address this issue. This amendment is expected to be back in parliament next week. Backbenchers wrote to the Chancellor to voice their concerns about the windfall tax. Others have also written to the chief whip.
Sir John Redwood MP, a member of The Telegraph, stated that the current windfall tax was “excessive” in his opinion and would “damage” the industry. He urged ministers “to see sense”.
He stated that “we need to get as much oil and gas from the North Sea as we can.” “I don’t think it’s a windfall tax if the profits fall. It is just another tax on businesses, another tax that taxes a business that generates a lot of income temporarily but has suffered heavy losses in the past.
Craig Mackinlay MP is the chairman of Net Zero Scrutiny Group. He added that: “We want more domestically generated energy. Taxing domestically derived energy more does not make it more affordable.
“Some supersized companies are able to accept that they have enjoyed some success for a while. But what happens if those good times do not last? What happens if your profit is smaller and more normal? Is it possible to tax at 75%? It’s too blunt.”
Bob Seely MP stated that he is worried about the security and availability of oil and natural gas supplies over the next decade. He explained: “We require that supply. It is clear that this is the case. This is a mistake that can lead to the collapse of North Sea production. We must tax the industry but not destroy it.
Separately, the Association of British Independent Exploration Companies warned the Chancellor about the “existential threat” posed by the windfall tax on companies involved in energy exploration.
Robin Allan, chairman of the association, wrote to Hunt, arguing that taxing his member at 75% will destroy the industry and, with it, these jobs and our nation’s energy security.
He stated that the UK Upstream companies cannot continue to shoulder this open-ended tax burden.
Arguments for the introduction of a price floor, Mr Allan stated: “Without such an instrument and to continue down at the current 75% rate, further investment into the UK is no longer viable and this begins a rapid decline of the North Sea.”
“No plans” to introduce a floor-price
Mr Hunt stated in his Autumn Statement that he had no objection to windfall taxes, provided they are “really about windfall profits caused unexpected increases in energy costs”.
According to a Treasury source, there are no plans to add a floor price to the windfall tax on energy companies.
It was revealed last week that Shell is reviewing plans for investing £25 billion into Britain’s energy system. This follows the increased levies announced in this Autumn Statement.
A Treasury spokesperson stated that they were open about the difficult decisions we face and asked those who have more to help us.
The Energy Profits Levy is a compromise between funding the cost of living and encouraging investment to boost the UK’s energy security. It is estimated to raise just under £40 billion over the next six years.
“We want to encourage the reinvestment in the sector’s profits, to support the economy and jobs, as well as our energy security. This is why we have reduced the tax a company will have to pay if they make more investments in the UK.
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