February 10, 2023

The disastrous effects of the windfall tax

The disastrous effects of the windfall tax

The drastic fallout from Jeremy Hunt's windfall taxes is now starting to bite. The industry warned the government that windfall taxes were a bad idea.

Harbour Energy, the UK's biggest oil and gas operator, won't bother bidding to explore for new oil in the North Sea and is cutting back its workforce in Britain.

Hunt's hike of the Energy Profits Levy (introduced by Chancellor Sunak) brought the effective tax rate on oil and gas operators to 75%, as they also pay a special 40% corporation tax rate.

France's TotalEnergies said it will cut North Sea investments by a quarter this year.

Hunt also introduced a windfall tax on low-carbon electricity generators, with a 45% sales tax. Community Windpower, which operates eight wind farms has said the tax is "a moratorium on new investment in this sector" and is pursuing legal action against the government.

Increasing tax on an industry that is experiencing difficulty with new projects because of supply chain disruption, high interest rates, and cost inflation is a move whose results are clear: Lower investment, job cuts, capital reallocation away from the UK where possible.

The CEO of Enquest has named the UK "particularly fiscally unstable" – oil & gas operators are moving to Asia instead he says. When your priorities are energy security and a transition to renewables, “increasing taxes is the last thing you want to do."

After a pandemic in which these companies racked up losses in the billions, raising taxes will only push them away. Spain's socialist government as well as Italy have introduced high windfall taxes with a similar response. The message to these companies = do not invest here.

Why would you invest in the UK if you know that a good year will mean confiscation of profits? Why would you invest in new discovery? Why would you put money and time into a green energy transition, especially if that is being taxed as well?