Campaigners and opposition politicians have called on Chancellor Jeremy Hunt to hit the UK’s energy giants harder after new figures showed the Treasury has so far netted £2.8bn from an Energy Profits Levy.
Prime Minister and former Chancellor Rishi Sunak introduced the 25 per cent levy in May to raise billions of pounds to help struggling households with the cost of living crisis.
The Treasury says the windfall tax, to be paid by oil and gas companies on profits made by their UK businesses, is forecast to raise £7bn this year and £10bn in 2023.
But ONS figures show the amount collected between May 26, when the levy came into force, and September 30 was £2.8bn. That means the Treasury will have to collect a further £4.2bn from energy companies in the final three months of this year to hit the 2022 target.
With soaring oil and gas prices set to deliver record breaking profits for the energy industry this year, Mr Hunt is coming facing growing pressure to go further and extend the windfall tax in the Autumn Statement later this month.
Mr Hunt is said to be considering increasing the levy from 25 per cent to 30 per cent and to extend it for a further two years to 2028 to help plug a £50bn hole in the public finances.
But campaigners say he should also scrap a tax relief ‘loophole’ which allows firms to significantly reduce their tax liability as long as they invest in their UK businesses.
A report by the New Economics Foundation calculated that scrapping the investment allowances would generate an extra £1.9 billion a year while raising the levy by 20 percentage points would raise a further £9.3 billion in 2022.
Last week Shell announced third quarter profits of £8.49bn but said they would not pay any tax under the windfall levy in 2022 because it is investing heavily in the North Sea, and has been decommissioning end-of-life assets for years.
Other major UK oil and gas companies did pay tax to the Treasury under the levy: BP said it expected to pay £714m under the 25 per cent levy in the seven months to the end of this year despite global profits surging to £7.1bn between July and September.
Meanwhile Harbour Investments announced on Thursday it would pay £357m in 2022 and Total have said they paid £536m under the levy between the end of May and September.
But critics of the Government described the levy as “weak” and “inadequate”.
Liberal Democrat Treasury spokesperson Sarah Olney MP said: “These sums are an embarrassingly small fraction of oil and gas profits, and show just how weak and inadequate the government’s energy levy is. The sad truth is that while people across Britain struggle to make ends meet this out of touch government is refusing to make oil and gas giants pay their fair share.”
Tessa Khan, Director for energy campaign and research group Uplift said: “We need a proper windfall tax on those companies.
“We need the Chancellor to stand up to oil executives--some of whom now concede they should be paying more tax-- and replacing the pitiful windfall tax introduced in May with one that is fit for purpose.
“He needs to close the gaping investment loophole that has allowed companies like Shell to pay next to nothing in tax this year and that has rewarded them for locking us into more unaffordable oil and gas. This is as straightforward a decision as they come.”
Defending the investment allowance in his windfall tax, Prime Minister Rishi Sunak told MPs on Wednesday: “As Chancellor, I introduced a new levy on oil and gas companies because I believed that that was the right thing to do.
“We believe that our North Sea producers do have an important role to play in our transition to net zero and are an important source of transition fuels, and we will ensure that we support them to enable them to invest in and exploit those resources for the British people.”
A Shell spokesperson said: “Shell has been investing heavily in the UK North Sea, and decommissioning end-of-life assets, for years. Under long-standing legislation, these costs are offset against tax liabilities. These factors, alongside others, mean that Shell doesn’t expect to make any profit in the UK in 2022, or to be in a tax-paying position in the UK this year. We do expect to pay tax in the UK in 2023.
“Shell UK is planning to invest between £20-25 billion in the UK energy system over the next 10 years – more than 75% of which is for low and zero carbon products and services including offshore wind, CCUS, hydrogen and electric mobility.”
Harbour chief executive Linda Z Cook, urged the Government not to hit oil and gas firms again. She said: “While we fully recognise the significant challenge in the UK to put public finances on a sustainable footing, we urge the government to carefully consider the consequences of any increase in or extension of the EPL. At a time when oil and gas producers are being asked to invest more to help ensure the UK’s energy security and are considering longer term, material investments, additional taxes would run the risk of undermining our ability to do either.”
Total were contacted for comment.
