British oil and gas industry opposes windfall tax being examined by Treasury

Open letter urges Prime Minister Boris Johnson not to cede to demands for a windfall tax

North Sea oil and gas extractors are under pressure to reinvest their profits in the UK energy sector. AFP

The British oil and gas industry has urged Prime Minister Boris Johnson not to impose a windfall tax on its swelling revenue, despite calls to redistribute the money to consumers facing a cost-of-living crisis.

A letter from 31 companies in the UK’s offshore energy supply chain said the industry was still recovering from the economic chaos triggered by the coronavirus pandemic and needed the money to invest in new projects.

It came as Chancellor Rishi Sunak ordered officials to examine a potential windfall tax on oil, gas and electricity providers, the Financial Times reported, after weeks of pressure from opposition parties.

Including electricity companies would increase the revenue from any windfall tax, with North Sea oil and gas producers making up “only half the picture”, one government insider was quoted as saying.

The government blames the rising cost of energy on Russia's war in Ukraine and post-pandemic turmoil in supply chains. UK inflation hit a 40-year high of 9 per cent last week.

Ministers have publicly played down calls for a windfall tax but said they were keeping the option alive to threaten energy companies if they did not reinvest their profits.

“If that does not happen soon and at significant scale, no option is off the table,” said Mr Sunak in a parliamentary debate last week. The Treasury would not be drawn on the report of officials studying a potential tax.

The open letter, issued by trade body Offshore Energies UK, said “any surprise windfall tax” would mean investments being scaled back and the ramifications being “felt throughout the supply chain”.

It said the war in Ukraine had sparked an international competition to find new sources of energy to replace Russian fossil fuels, meaning Britain would be left behind if investment in clean energy is muffled by a new tax.

Britain last month unveiled an energy security strategy that envisages more offshore wind, a new generation of nuclear reactors and more oil and gas extraction from the North Sea.

“A one-off windfall tax on energy producers will not sustainably help consumers and will only further reduce investor confidence in the UK, the ripple effect of which we will feel for many years to come,” the letter said.

“Undermining the UK’s oil and gas fiscal regime, just as we start to turn a corner of recovery, risks sparking a chain of events which could slow down the energy transition.”