Windfall tax risks hitting investment, Sunak warned

OIL and gas veteran Sir Ian Wood has warned a windfall tax would deter spending in the North Sea at a critical time as experts predicted it would deliver a blow to investment.

Sir Ian Wood said a raid on producers would have a “major negative impact”. He told BBC Radio 4’s Today programme: “Windfall taxes in the past generally haven’t worked all that well – they’ve been helpful in one year and then there’s been a kind of negative reaction against them.

“We absolutely must keep our oil and gas industry going for a reasonable period of time, and if we start introducing significant taxation, it will have a major negative impact.”

It came as forecasters warned the tax would cause a blow to investment with a risk of long-term damage.

Sir Ian, the former boss of oilfield services company Wood Group, carried out a review for the Government in 2013 into maximising economic recovery from the North Sea. He is now chairman of the Energy Transition Zone, around Aberdeen, supporting the shift towards greener technologies such as hydrogen.

Labour has been calling for a windfall tax to help households pay energy bills, which are now averaging £1,971 a year.

Rishi Sunak, the Chancellor, has not ruled out a windfall tax and is pushing producers to invest in energy supply.

Sir Ian said the North Sea oil industry was already going to contribute almost £8bn in taxes this year, “which amounts to about £279 per household in the UK”. He warned there were signs of new investments being made in the basin “but if there’s a negative windfall tax introduced, some of these undoubtedly will be shelved”.

Economists have also warned a windfall tax risks sending a damaging signal to businesses. Julian Jessop, at the Institute of Economic Affairs, said: “A windfall tax would have a small but negative impact on investment and jobs. The immediate cost would be limited: £3bn in additional tax would only be around 0.1pc of GDP.” However, he said there is a risk of a wider impact by sending a “wrong signal to anyone planning to invest in the UK in future”.

Karl Thompson, at the Centre for Economics and Business Research, added: “It may be reasonably asked why a windfall tax is needed at all when the Treasury is expected to receive £7.8bn from oil and gas producers this fiscal year.”