Sunak’s £17bn ‘stealth raid’ on the energy industry

Fears for investment in the North Sea after Treasury plans reveal windfall tax could be levied until 2025

RISHI SUNAK has been accused of mounting a £17bn stealth raid on the oil and gas industry after the Treasury left the door open to levying his windfall tax for three years in a row.

Unveiling the “energy profits levy” last month, the Chancellor said the controversial measure was expected to bring in just over £5bn for the Exchequer in 12 months.

However, official guidance revealed the tax will remain in place until oil and gas prices “return to historically more normal levels” or the activation of a “sunset clause” in 2025.

Industry insiders have warned that it means the windfall tax could end up raising £17.5bn – or about £5.5bn for three years in a row.

Mr Sunak’s decision to impose the levy, which is being used to fund a package to support households with surging energy bills, has provoked a backlash from Tory MPS, with one accusing him of “throwing red meat to socialists”.

But one oil industry insider pointed out that should the tax remain in place for three years, it would bring in more than eight times the £2bn that would have been generated by a one-off tax advocated by Labour.

At the same time, companies including BP and Shell have warned the move creates significant uncertainty, with both now reviewing their plans for investment in the North Sea.

Ryan Crighton, policy director at Aberdeen & Grampian Chamber of Commerce, said the Treasury had so far failed to clarify what “normal prices” means. He said: “This tax is an illthought-out response to what was an appallingly ill-informed debate about the contribution the energy industry already makes to the Exchequer.

“In the short-term, taking an additional £5bn from companies already taxed at 40pc will achieve very little apart from making the North Sea – already one of the world’s most-mature basins – less attractive to investors. This levy has no incentive to invest in low carbon technologies and no clarity around what constitutes a high oil price, which suggests an intent to keep it in place until the sunset clause kicks in.

“By then, £17.5bn could have been taken out of the industry at a crucial point in our net-zero journey. We’ve well and truly shot ourselves in the foot.”

Analysts at Wood Mackenzie have warned oil and gas firms to potentially expect to pay the levy multiple times. Neivan Boroujerdi said it was “far from certain” what the Treasury meant by historically normal oil and gas prices and so “fiscal uncertainty in the UK will remain a key issue for investors”.

After the announcement of the windfall tax, BP also refuted claims the levy was a “one-off tax”. The company said: “It is a multi-year proposal. Naturally we will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans.”

Bernard Looney, BP’S chief executive, had previously indicated £18bn of planned investment in the UK would not be affected by a raid on profits. His comments emboldened the Government to press ahead with the tax, it was reported, prompting some in the industry to dub it the “Looney Levy”.

The levy takes the effective tax rate on North Sea oil and gas producers from 40pc to 65pc. Mr Sunak announced it after Ofgem, the energy regulator, warned that household energy bills could hit £2,800 in October – having already climbed by 54pc in April.

The money will help the Government provide £21bn of support to households, including a £400 energy bill rebate in October. Eight million low income households are also due to get a new £650 cost of living payment. It comes on top of a £150 council tax rebate.

A Treasury spokesman said: “The levy’s investment allowance means businesses will overall get a 91p tax saving for every £1 they invest and allows for investment in activities to cut emissions, which could include electrification.

“In addition, there are already numerous generous incentives available to bolster investment in renewable energy, including the super-deduction, the UK’S competitive R&D tax relief regime and the Contracts for Difference scheme.”