ABERDEEN, UK – Britain’s opposition party the Liberal Democrats has suggested that the government impose a one-off ‘windfall tax’ on the UK’s offshore oil and gas companies, using the proceeds to help consumers cope with surging energy prices.
Industry association Oil & Gas UK (OGUK) has warned that such action, if implemented, would cause irreparable damage to the industry, threatening future investments in the UK’s offshore sector and thereby leaving consumers even more exposed to global shortages.
Higher gas prices could add £700 ($947) to the average UK domestic annual energy bill – currently £1,250 ($1,692) – from April.
OGUK said the increases, due mainly to global gas supply issues, are a Europe-wide problem, and stressed the need for the government to protect the UK’s offshore industry rather than penalizing it with higher taxes.
It pointed out that the sector produces around half the 74 bcm consumed annually in the UK, with Britain still reliant on oil and gas for about 73% of its total energy requirements.
However, energy companies would become increasingly reluctant to commit to long-term multi-billion-pound investments for further offshore developments if targeted by new windfall taxes whenever prices rise.
This could cause a steep decline in the UK’s oil and gas production, leading to much higher imports (if available) from major producers in Russia, the Middle East, and elsewhere.
Jenny Stanning, OGUK external relations director, said: “In the short term the Treasury is already gaining from these price rises.
“It will get an additional £3.5 billion [$4.74 billon] taxes in the two years from last April – making a total of more than £5 billion [$6.77 billion]. We already pay up to 40% corporation tax – roughly double any other sector…
“Many of the companies that might be affected by a windfall tax are also investing heavily in low-carbon and renewable energy. For them, a windfall tax could reduce the amounts they could invest.”