UK companies servicing oil and gas operators have urged the Prime Minister and the Chancellor against enforcing a windfall tax, in an open letter. Political pressure has mounted on the UK Government for a one-off additional tax to fund support for customers facing higher energy bills.
In response, 31 organisations in the UK’s offshore energy supply chain have written an open letter calling for an end to speculation about such a tax. They include manufacturing and technology companies.
Earlier, Prime Minister Boris Johnson said there would be further help to deal with the rising cost of living, but he was “not attracted” by the idea of new taxes, in response to calls for a one-off levy on oil and gas firms to support struggling households. The Treasury has refused to be drawn on a report in the Financial Times that Chancellor Rishi Sunak is considering a levy on the profits of electricity generators – including wind farms – as well as on oil and gas companies.
Mr Sunak, like Mr Johnson, has expressed reluctance to go down the road of a windfall tax, but he has acknowledged the need to be “pragmatic” in the face of the cost-of-living squeeze. In the letter, issued on Tuesday by trade body Offshore Energies UK (OEUK), which represents more than 400 companies in the sector, signatories warn that the industry is only in the early days of a recovery, after suffering significant losses in recent downturns.
The letter says: “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. “And it will do nothing to address the cyclical nature of an energy system linked to global supply and demand, with the UK becoming much less attractive to investors who will look elsewhere for the long-term stability they require to progress major energy projects.”
It went on to say any “surprise windfall tax” risks operators – big and small – scaling back their investment plans in response, which could have an impact on jobs. The letter says: “The ramifications of any halt in investment will be felt throughout the supply chain, through jobs, and the communities this industry supports, both directly and indirectly.
“For the tens of thousands of jobs this industry supports, the impact of a windfall tax will be even greater in the long term. This is not least because it follows a downturn felt especially hard by the supply chain side of the industry, with thousands of manufacturing roles lost up and down the country.”
OEUK chief executive Deirdre Michie added: “After significant downturns which saw the offshore energy industry lose thousands of jobs, we need to encourage investment in cleaner energies and the sector which supports it. This industry is committed to supporting the country’s energy security, economy and net zero ambitions – now is the time for us to work together to drive action.”
Pressure for a windfall tax has come from Labour but also from some senior Tories. A Treasury spokesman said: “We understand that people are struggling with rising prices, and while we can’t shield everyone from the global challenges we face, we’re supporting British families to navigate the months ahead with a £22 billion package of support.”
The 31 signatories are from: 3T Energy Group, Aker Offshore Wind, Apollo, Aubin Group, Baker Hughes, Bilfinger, Blade Energy Partners, Carjon-NRG, Dron Dickson, Exceed, Fennex, Global E&C, Halliburton, Hydrasun, ODE Asset Management, Offshore Water Management, Optimus Plus, PD&MS Group, Petrofac, Ponticelli, Prodrill Energy Resource Solutions, Semco Maritime, Stork, Subsea7, TechnipFMC, Tees Medical Services, Texo Group, Three60 Energy Group, Vysus Group, Wood, and Worley.
Full text of open letter from offshore energy supply chain companies
To: Prime Minister Boris Johnson and Chancellor Rishi Sunak
In the search for solutions to today’s cost of living crisis, the need for long term thinking has never been greater.
We look at current calls for a windfall tax on energy producers with grave concern that it would be a blunt short-term response which could undermine the levers to long-term solutions.
Our companies, still recovering from the last downturn, today help support some 200,000 jobs and contribute billions to local economies across the UK. As an already fragile supply chain supporting these producers, any further risks to future activity would have severe consequences.
During the 2015 downturn, the depression of global oil prices resulted in some 150,000 jobs lost in the UK oil and gas sector alone, with most of these felt by colleagues in our own organisations.
We are in the early days of what we hope will be a form of recovery – one that is already yielding results for UK taxpayers.
Operators are set to pay £7.8bn in production taxes this financial year alone – a tangible turnaround after significant losses of previous years.
These monies could be used to offset the consumer crisis while not undermining crucial investor confidence.
To date this industry has paid over £375 billion in production taxes alone – equivalent to building more than 4,000 hospitals while supporting thousands of supply chain jobs in the process.
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.
And it will do nothing to address the cyclical nature of an energy system linked to global supply and demand, with the UK becoming much less attractive to investors who will look elsewhere for the long-term stability they require to progress major energy projects.
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.
For our companies, any surprise windfall tax risks operators – big and small – scaling back their investment plans in response. The ramifications of any halt in investment will be felt throughout the supply chain, through jobs, and the communities this industry supports, both directly and indirectly.
For the tens of thousands of jobs this industry supports, the impact of a windfall tax will be even greater in the long term. This is not least because it follows a downturn felt especially hard by the supply chain side of the industry, with thousands of manufacturing roles lost up and down the country.
International competition to support the shift away from Russian supplied oil and gas is hot. Many countries are already leading the pack in both energy security and clean energy capabilities. If the UK wants to reduce its reliance on imports and gain first-mover advantages that can be exported globally, investment in the production of cleaner energies must be made urgently.
At the same time, oil and gas production remains a predictable source of income for many of our companies, which gives us the headroom to build capacity and capability in cleaner energies.
This is imperative if we are to create new green jobs that the UK needs. It is unclear where the £1 trillion investment required would come from should international operators decide to pivot away from the UK in response to an unpredictable fiscal regime. We would risk new green jobs going overseas and once the opportunity is missed it won’t come back round.
The UK is on the cusp of a transition towards cleaner energies. We are on a mission of a scale not seen since the industrial revolution. The mass re-engineering of the UK’s energy system will require a sustained pipeline of skilled people, innovation, and investment over decades.
We agree with government that as much of those energies as possible should be produced here in the UK to secure our energy supply and build new economic sectors here both for use in the UK and to export skills and UK manufactured equipment globally. This will require significant investment from industry as agreed under the North Sea Transition Deal.
Increasing the availability of home-produced resources means that consumers can look to a future of greater reliability and stability in their heating and electricity bills. More than this, that energy will come with an increasingly lower carbon footprint as near-term profits are invested in producing energy more sustainably.
Today’s cost of living crisis reinforces why the ambition to build back better can’t be undermined by the pursuit of short-term solutions.
We hope that politicians of all parties will consider the full implications and broader policy levers to bring about our shared goal – the production of secure, cleaner, more affordable home-produced energy to help millions across the UK, for the long term.
