30 October 2024
If you are covering the extension to the Energy Profits Levy announced in the budget today, please find below a comment from Maurizio Carulli, energy analyst at Quilter Cheviot:
“The UK government has today announced the increase of the windfall tax on North Sea oil and gas producers, which was introduced by the previous government in 2022, in what was meant to be a temporary measure to address the “extraordinary profits” these companies achieved as a result of the spike in energy prices. Today’s budget has further extended the levy by one year to 2030, has increased its rate to 38% from 35%, and scrapped a 29% investment allowance previously allowing the company to offset tax from capital that is reinvested. It has maintained the decarbonisation allowance.
“Whilst we understand the need to raise tax revenues in this budget, and the government commitment to further decarbonise the UK economy, these changes are likely to negatively affect the economic conditions of what is a significant industry to the UK. Ultimately, this will hamper investment made by energy companies, make the UK portion of the North Sea a less appetible area for capital investment, and for gas, increase the need for imports in the future, which will potentially affect prices consumers pay and potentially compromise the priority of achieving energy security.
“Given the original policy was introduced in 2022 following Russia’s invasion of Ukraine, oil and gas prices sit at a very different price point presently. Thus the phasing out of the windfall levy appeared fair given its temporary nature, but now it must be considered a levy that is always in play for extension, making investment planning for the oil majors harder to ascertain.”
