Chancellor Rishi Sunak is visiting Aberdeen to meet with oil and gas companies and discuss the investment allowance in the windfall tax plan and reiterate the importance of the North Sea in the UK's transition to net zero.
He will host a roundtable with chief executives from oil and gas companies to stress the importance of the North Sea sector to the UK's domestic energy supply and security, in the context of Putin's invasion of Ukraine.
Sunak is aiming to reassure attendees that the UK Government is committed to encouraging investment in the North Sea sector in the context of the recently announced Energy Profits Levy, which is helping to pay for the package of support to help people with the cost of living.
The levy’s investment allowance means businesses will overall get a 91p tax saving for every £1 they invest, with the suggestion that this be used in activities to cut emissions, which could include electrification.
There are also other tax and non-tax levers to support the transition to clean energy, including the super-deduction and the UK's research and development tax credit regime.
The temporary 25% tax on profits is aiming to raise around £5bn over the next year; set to be phased out when prices return to more normal levels.
Oil prices have nearly doubled year-on-year, while gas prices have more than doubled, resulting in significant increases in profits earned from UK oil and gas extraction, at the same time that consumers are suffering.
Ahead of the roundtable, Sunak said: “Following Putin’s barbaric invasion of Ukraine we see the importance of the UK’s energy supply and security now more than ever.
“It’s vital we encourage continued investment by the oil and gas industry in the North Sea and our new investment allowance provides huge tax reliefs for projects that cut emissions.
“I look forward to hearing about the projects Scottish industry have planned as they continue to lead the charge to net zero with new innovations and investment.”
Sunak will also meet front line workers from the industry in Treasury Connect, a forum where he will answer questions from audience members.
The SNP’s shadow business, energy and industrial strategy spokesperson, Stephen Flynn, commented: “Rishi Sunak is visiting a city that has bankrolled his government to the tune of nearly £400bn over the years, but he has failed to deliver tangible support following the 2020 downturn and he has stalled on support for our Just Transition.
“His government has faced repeated calls to match the Scottish Government’s £500m Just Transition Fund, to back carbon capture in the North East and to change his investment allowances plan to encourage renewables development, yet, despite the cash he is counting in the Treasury, he sat on his hands.
“The Chancellor has a cheek to say he champions the future if energy in the North Sea, but for too long his government has syphoned off profits from Scotland’s resources while failing to invest in our energy sector and Net Zero future – the reality is Scotland has the energy, it just needs the power.”
In an open letter last month, Harbour Energy chief executive Linda Cook told Sunak that his levy disproportionately affects independent oil and gas companies, rather than global majors such as BP and Shell.
“The four largest independent UK producers, including Harbour, are forecast to deliver over 440,000 barrels of oil equivalent a day this year,” Cook wrote in the letter published by Bloomberg. “We should all be concerned about the disproportionate impact the levy has on these companies.”
Harbour estimates the tax will cost the largest independent UK producers more than £2.5bn from 2022 to 2025. Cook wrote that the end of the levy should be brought forward to 2023 in order to ensure “tax relief can be confidently factored into investment decisions”.
BP has stated that it will review the impact on its £18bn spending plans in the UK because of the tax, while Shell criticised it for creating “uncertainty” in the sector.
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