UK Oil and gas windfall tax loophole 'must be closed'

The Energy Profits Levy - a windfall tax on the oil and gas sector - was at the forefront of headlines following the Spring Budget after Chancellor Jeremy Hunt announced it would be extended by a year to 2029.

There was uproar from the industry and politicians alike, with Scottish Tory leader Douglas Ross left hung out to dry as the Chancellor admitted the industry was one of the big losers in the announcement.

However, as the windfall tax stands, there is a loophole that allows companies a tax break of 91p for every £1 they invest in UK oil and gas operations. This caveat has meant that previously in 2022, neither Shell nor BP paid any tax in the UK, despite shareholders raking in billions.

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Climate campaigners have also raised concerns about the recent pressure the industry has piled onto politicians and the impact this will have on a just transition to renewables.

Following Labour’s suggestion that they would increase the windfall tax by 3%, albeit to fund nuclear power in England, the oil industry claimed this would decimate jobs.

With the North Sea basin declining, and “alarmist” threats of hundreds of thousands of jobs at risk if the industry would be taxed more, Scottish Greens MSP Mark Ruskell told the Sunday National of his frustration.

“I’m struggling to see how a 3% increase in windfall tax would suddenly stop production overnight,” Ruskell said.

“I think it's really alarmist for the industry to say that and it's quite alarmist for politicians to get behind that figure. 100,000 jobs - that would be the equivalent of the entire sector stopping overnight.”

Ruskell (above) explained that the Energy Profits Levy has varied over the years and has been ramped up by the UK Government.

“I don’t think a marginal increase like that would have the effect of stopping things overnight.

“I think what would be more significant would be if that loophole was changed or closed because then that is about redirecting company profits in a more substantial way.”

The Scottish Greens MSP added that the oil and gas industry has a long history of “very successfully” funding think tanks and influencing the political debate on the issue - largely at the cost of attempting to tackle the climate crisis and transition to renewables.

“I think that is what we are seeing now,” he added.

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“It's happening globally, but it's happening in Scotland as well. I think it's really concerning that there are some distorted arguments coming into the debate.

“The whole point that this is about energy security - even though 80% of our oil was getting exported.”

The debate on the future of the industry is evidently being steered to benefit shareholders and corporate interests of the energy giants, Ruskell added, but noted they had to be involved in discussions to manage the decline of resources and shift to renewables.

“I am concerned that what we're hearing is industry voices being amplified in many different ways at the moment, and their arguments being amplified by politicians,” he added.

“When actually if we look around us and see what's happening with climate change, this transition needs to accelerate, not be held back.”

What do climate change campaigners have to say about the windfall tax?

ALEX Lee, climate campaigner at Friends of the Earth (FoE) Scotland, said it was “contemptible” that politicians were lobbying on behalf of oil companies profits whilst thousands of Scots have been forced into fuel poverty.

“Everyone can see that the billions in profits from sky-high fossil fuel prices are further enriching shareholders and company bosses, and providing no benefit to the rest of us,” they said.

“The shamelessness of the oil industry is breathtaking. These companies are complaining about paying taxes to support public services when they are posting all-time record profits.”

Lee described the tax loophole as “obscene”, pointing out that this would mean firms embarking on developments such as the highly contested Rosebank would be able to claim back 90% of their costs.

“Vital public services are being cut while public funds are subsidising the fossil fuels that are driving the cost of living and the climate crises,” they said.

“If our politicians really cared about securing jobs in the North East, they would be focusing on creating a jobs guarantee for oil and gas workers and investing in a fully renewable energy system. Any less is hanging workers out to dry.”

Tessa Khan, executive director at climate charity Uplift, said it was “a bit rich” of the industry and politicians to cite job losses when recent years have seen the “highest industry profits but the lowest level of industry investment in the basin in five decades”.

“This money is going to shareholders - not to investment in clean energy jobs in Scotland,” she added.

“The current political jostling over the windfall tax serves only to highlight the lack of serious debate and planning around the UK’s shift away from oil and gas, which is already happening.”

Khan added that jobs in the industry have halved over the last decade and that politicians in Westminster and Holyrood need to face up to “reality”.

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Meanwhile, Philip Evans, campaigner at Greenpeace UK, agreed that oil giants were “heaping pressure on politicians” in a bid to protect their profits.

“Oil and gas workers are being treated like pawns in their political game,” he said.

“The windfall tax is the bare minimum needed to force the industry to pay their fair share for the profits they have made from climate-wrecking fossil fuels - and even that remains ridden with loopholes.”

Evans called on politicians at both Westminster and Holyrood to stop “political point-scoring” and force oil giants to pay up and fund a just transition rather than “lining the pockets of shareholders”.