AGCC secures Energy Profits Levy concession to protect North Sea jobs and investment

Gareth Davies MP, Exchequer Secretary to the Treasury,

THE UK Government will make changes to the windfall tax from April following a campaign by Aberdeen & Grampian Chamber of Commerce.

HM Treasury has confirmed its intention to inflation-adjust the price floor at which companies no longer have to pay the additional levy. 

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The decision follows direct calls, from the Chamber, for the UK Government to recognise the damage the tax is having on jobs and investment in the UK Continental Shelf.

More than 1,000 jobs have been lost in the oil and gas sector since the introduction of the Energy Profits Levy (EPL), which increased total taxes on the sector to 75%, one of the highest rates in the world.

The introduction of a price floor – a base price at which the levy would fall away – has done little to restore investor confidence, because the average price has been set at $71.40 per barrel for oil and £0.54 per therm for gas – a level which is unlikely to be triggered. 

The 20-year average figure used to set the current price floor – the Energy Security Investment Mechanism (ESIM) – is not inflation adjusted. However, that will change from April.

In a letter to the Chamber, Gareth Davies MP, Exchequer Secretary to the Treasury, has confirmed that the government has decided to adjust the ESIM price thresholds in line with inflation in future tax years.

“Future adjustments to the thresholds will be based on annual CPI, starting from April 2024 and using the preceding December’s CPI figure,” he said in a letter.

Ryan Crighton, Policy Director at Aberdeen & Grampian Chamber of Commerce, welcomed the concession, but called on the government to go further.

“This is another sign that the Treasury recognises the impact the windfall tax is having on future North Sea activity and therefore jobs here in the North-east of Scotland.

“However, the government needs to go further. By their own admission, the original price floor will not be triggered. And even when it is adjusted for CPI inflation that remains the case.

“Put simply, the windfall tax needs to go if we are to avoid a cliff-edge end to our domestic oil and gas industry and the 215,000 jobs it supports across these isles.

“Recent legislation laid before parliament government has the clear intention of stimulating further exploration and production in the North Sea, something we are aligned on the need for. 

“However, these mandated licencing rounds will achieve nothing when accompanied by a fiscal regime which is driving companies, investment and jobs away from the UKCS.”

There is mounting evidence that the EPL is having a detrimental impact on investment in the UKCS and thus undermining the government’s policy goals. 

More than 1,000 workers already face an uncertain future due to the planned closure of Scotland’s only oil refinery at Grangemouth, plus job cuts at Harbour Energy and Apache.

The Chamber’s recent Energy Transition Survey also highlighted that confidence in the UK sector is at a record low, and clearly deviating from other basins.

There is also clear evidence from those in the energy sector that discretionary capital is moving elsewhere due to the severity and duration of the tax. 

Mr Crighton added: “Under traditional reserve-based lending (RBL) mechanisms, the UKCS has become uninvestible for many. As the tax burden on companies grows, their expected future revenue shrinks, leading banks to cut borrowing RBL facilities, which are reviewed several times a year.

“The investment plans of smaller producers are particularly dependent on RBLs. This doesn’t just impact the willingness to invest but also the capacity to invest.

“We need the remove the EPL to secure the investment required in the energy sector to enhance our energy security today, and to help fund the new technologies of tomorrow.”

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