North Sea oil and gas producers on Tuesday rejected calls for the UK government to levy a wind tax on their profits to offset an imminent rise in household energy bills. they have obtained higher revenue from the industry.
A one-time levy on this sector is one of several options is considered of the Treasury as ministers come under growing pressure to tackle the looming cost-of-living crisis. The opposition Labor Party at the weekend said such tariffs could partial fund proposed a cut of around £200 on all household energy bills this year.
Household budget will have severe stress in April with a cap on energy bills for more than 15 million households set to rise by more than £700 to £2,000. This will coincide with large increases in national insurance and income taxes with inflation at a decade high.
But OGUK, the trade body that represents offshore oil and gas operators, hit back, claiming that the Treasury had benefited from rising gas prices “without any taxes.”
OGUK has calculated that the industry will have to pay an extra £3 billion in taxes over the two years from April 2021 because of high commodity prices. The figure is higher than the £2 billion expected already included in government projections, the group said, with total industry contributions of £5 billion.
“The UK Treasury has made substantial gains from these [gas] Jenny Stanning, director of external relations at OGUK, said although she acknowledged the actual outcome would depend on commodity price movements.
Government officials confirmed that OGUK’s calculations were generally in line with revised estimates from the Office for Budget Responsibility, the UK’s fiscal watchdog.
But analysts say that despite the setbacks, the industry will struggle to come up with a convincing argument in the face of public opinion. Many oil and gas producers are expected to post strong financial results as gas prices soar at the same time that energy regulator Ofgem is expected to confirm an energy price ceiling. in the country increased sharply on 7/2.
Oil major Shell will announce its earnings on February 3. While rival BP – whose chief executive Bernard Looney was recently announced brag that high oil and gas prices have turned his company into a “money machine,” reported Feb.
“Surname [oil and gas producers] are the main beneficiaries of [elevated gas prices] Graham Kellas, senior vice president of global financial research at consulting firm Wood Mackenzie, said the main people that will suffer from this are old-age pensioners and others who need help with their financial needs. their heating bills. “They won’t get much sympathy.”
Successive governments have a long history of manipulating tax rates on the oil and gas sector to make the most of the commodity price boom, analysts say.
“What the UK government has done – and this is whether it is Tory or Labor – [is] they manipulated tax rates and allowances [for the UK North Sea] on a fairly regular basis and it is usually a response to significant changes in [oil or gas] Kellas said.
A mechanism already exists for a “corporate tax”: an “additional charge” is levied on a manufacturer’s UK operations on top of corporate tax. The additional charge is 10%. But in 2011 it was increased to 32% from 20% by then Tory prime minister George Osborne to boost revenue as he sought to cash when oil prices are high.
The sector also pays a 30% higher corporate tax rate than the standard 19% rate.
However, compared to tax regimes on fossil fuel extraction elsewhere in the world, the UK’s North Sea enjoys one of the most favorable, with advantages including reduced gasoline sales tax rate to zero in 2016 and allows companies to use it to exploit some of the losses and downtime costs.
Operators say the facilitation mechanism is needed due to the age of the basin, which makes extracting the remaining reserves more expensive.
They also argue that further tax increases will only hold back investment in the North Sea, where production peaked at the end of the last century and is now in decline over the long term. This will affect their ability to sustain dwindling domestic supplies, making Britain, which already imports more than 50% of its gas, even more dependent on countries like Russia. and Qatar.
Mitch Flegg, chief executive of Serica Energy, which accounts for 5% of UK gas production, warned that imposing a wind tax could “make it more difficult” for companies like his to continue ” significant increase in investment that we are planning. over the next few years – that could lead to further shortages and, as a result, volatile prices. ”
Analysts acknowledge that investment in the North Sea persists after previous tax hikes, but the industry has complained much. But Derek Leith, global head of oil and gas taxes at EY, thinks the warning this time around may well be grounded as attitudes change on the sector.
Oil and gas producers are finding it harder to attract investment as banks and institutional shareholders tighten environmental, social and corporate governance criteria. “You will increase that investor’s uncertainty even more [through the introduction of a windfall tax] harm to [domestic] production?” Leith said.