THE WINDFALL tax on North Sea firms will be suspended if prices fall to normal levels for a sustained period, the UK Government has announced.
A new price floor will cut the overall tax rate on energy firms from 75% to 40% if oil and gas prices fall to defined historic norms for two consecutive quarters.
But the tax rate will only return to 40% if both average oil and gas prices fall to or below $71.40 per barrel for oil and 54p per therm for gas.
The Brent crude futures price was standing just above $75 this morning while the UK futures price for gas was 63.75p – so there is unlikely to be any financial respite for firms in the short term.
Russell Borthwick, chief executive at Aberdeen & Grampian Chamber of Commerce, said: “The introduction of a price floor is a welcome step in the right direction, but if the UK Government is serious about unlocking the investment trapped by its current fiscal regime, then the finish line is still some way off.
“We are pleased that the Chancellor has listened to an industry that directly employs over 200,000 people in the UK – a quarter of them in the North-east of Scotland – and currently provides the domestic energy security to keep the lights on.
“Since it was put in place a year ago, and then further increased, this ill-thought-through tax raid has achieved little other than to shatter confidence in the sector, cost jobs, caused investment to be cancelled or driven overseas and further threatens our ability to deliver energy transition. Today’s intervention tells us that the UK government clearly now recognises their mistake.
“Prices have already returned to historically normal levels, so there are no windfall profits to tax. The changes announced today will do little to reverse the worrying trends we are seeing as it’s highly unlikely the oil price will fall below the floor for a six-month period any time soon.
“A punitive tax rate of 75% – one of the highest in the world – remains an ongoing threat to a world leading sector that was once the jewel in the UK’s industrial crown. That rate needs revised downwards urgently.
“We urge government to work with the industry and re-think the terms of the changes being made to EPL, as in their current form, they will make no material difference.
“Get the fiscal conditions right however and the prize could be billions of pounds worth of investment and thousands of new jobs being created in the North Sea.”
OEUK Chief Executive David Whitehouse said: “We’ve always been clear that when the windfall conditions go, the windfall tax should go.
“This is a step in the right direction, but many more will need to be taken to restore confidence to our sector. We will now work closely with government and lenders to understand the detail of the measure and its effectiveness at unlocking investment.”
Gareth Davies, Exchequer Secretary to the Treasury, said this morning: “It is right that we recover excess profits resulting from Putin’s war and use the money to help people with their energy bills.
“Thanks to the revenue raised from windfall taxes on energy profits, we have helped save the typical household over £1,300 on their energy bill last winter.
“While we stepped into help, never again can our energy supplies be at the whim of petrostate despots like Putin. That’s why it’s so important that we secure investment in our own domestic supply, protecting the tens of thousands of British jobs that come with it.
“It would be beyond irresponsible to turn off the North Sea taps overnight. Without oil and gas from British waters, we would be forced to import even more from overseas, putting our security of supply at risk.”
Just last month, the UK’s biggest oil and gas producer Harbour Energy said that a review of its British organisation, which will see hundreds of jobs going, is on track to complete in the second half of this year.
As previously announced, this study is expected to result in a reduction of around 350 onshore positions.
The review is forecast to deliver annual savings of around £40million from 2024, following an estimated £12million one-off charge to be taken in Harbour’s 2023 interim financial results.
In April, the company confirmed plans to axe one fifth of its workforce, blaming the windfall tax on North Sea oil and gas producers for deterring investment.
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The majority of the jobs going are understood to be in Aberdeen.
Harbour has pointed to the chancellor’s money grab having squeezed cash flows and put off financial backers.
Harbour said in March that the controversial UK tax on North Sea producers had virtually wiped out its profits for the last year. Profits after tax were less than £7million on turnover of more than £4.5billion.
