THE United Kingdom’s new tax system for North Sea oil and gas could lead to an investment slump of more than 80 per cent, an industry lobby group said.
Offshore Energies UK (OEUK) said on Monday (Sep 2) that changes by the new government could mean capital spending on UK projects falls to £2.3 billion (S$3.9 billion) from 2025 to 2029, down from an estimated £14.1 billion under the current fiscal regime.
The changes include a higher windfall tax and removal of an investment allowance.
Chancellor of the Exchequer Rachel Reeves plans to raise the energy profits levy by three percentage points in an effort to fill a £22 billion black hole she said was left by the previous government.
That would bring the headline rate of tax for UK oil and gas producers to 78 per cent.
The changes will be finalised in an October Budget statement that UK Prime Minister Keir Starmer has said will be “painful”.
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The moves “will trigger an accelerated decline of domestic production and a corresponding reduction in taxes paid, jobs supported and wider economic value generated”, OEUK chief executive officer David Whitehouse said.
Over the next five years, almost half of the additional oil and gas production that could have got the go-ahead under the current tax system would be uneconomic under the new proposals, OEUK noted.
The group added that more than 35,000 jobs are at risk in 2029 due to projects being shelved.
The plans are already having an impact. North Sea explorer Neo Energy said on Monday it will “materially slow down investment activities”, citing the government’s fiscal plans and regulatory uncertainty.
The company, backed by Norway’s HitecVision, said it cannnot yet assess the full impact on its Buchan Horst project, but expects first oil to be delayed.
Chancellor Reeves said the changes to oil and gas taxes, which also include scrapping a 29 per cent investment allowance, would bring in annual revenue of £1.2 billion.
OEUK estimated that proposals may yield just £2 billion over the five-year period because of the investment slowdown. BLOOMBERG
