THE North Sea windfall tax hike announced last week has provoked outrage in the oil and gas industry that probably won’t inspire much public sympathy amid complaints the Government is making middle earners pay most for the UK’s debt problems.

In his fiscal statement the Chancellor Jeremy Hunt increased the rate of the Energy Profits Levy introduced in May by Rishi Sunak when he served in that post, to 35 per cent from 25%.

The increase was sharper than expected following suggestions the rate could increase to 30%. Mr Hunt also said the levy would be in place until the end of 2028 rather than 2025.

The news dismayed North Sea industry leaders who warned it could provoke an exodus from the area when we need to maximise production to help reduce reliance on imports following the surge in gas prices fuelled by Russia’s war on Ukraine.

Noting the latest increase meant firms would be paying a total tax rate of 75% industry body Offshore Energies UK said the move was unfair and could drive investment out of the UK altogether.

“The extension to 2028 takes no account of the likelihood of prices falling in that time,” said chief executive Deirdre Michie.

After describing the idea of a windfall tax increase as “outrageous” Aberdeen and Grampian Chamber of Commerce accused the Treasury of using the region it represents to plug a hole in the public finances.

“The Treasury’s own figures show that North Sea companies will pay £80billion in tax over the next six years, £40billion of it in windfall taxes alone,” complained policy director Ryan Crighton.

The calculation will be noted by First Minister Nicola Sturgeon, who has said Scotland could use the proceeds of North Sea taxation to build a £20 billion investment fund.

In the 2014 referendum campaign the SNP based its economic case for independence on the claim North Sea revenues would bankroll Scotland only to see the crude price plunge and related tax revenues dry up.

Ms Sturgeon opposed plans for the giant Cambo oilfield development off Shetland last year as she looked to keep greens onside but has sat on the fence about Equinor’s proposals for the Rosebank field.

After the oil and gas industry mounted a sustained PR campaign to head off a windfall tax rise Mr Hunt clearly felt he could afford to ignore the warnings involved. Mr Sunak eventually made the same decision in May.

Former prime minister Boris Johnson bought the industry line about the impact of windfall taxes on investment while his successor Liz Truss opposed them on ideological grounds.

The moves made by Mr Hunt and Mr Sunak may reflect the view the energy sector provides an unusually lucrative source of revenues following the surge in prices this year while there are obvious political advantages to taxing it more heavily.

The Government has stolen Labour’s thunder amid anger that oil and gas firms and energy generators are making staggering amounts of money while many consumers face real hardship. Under Mr Hunt’s plan average annual bills are set to rise to £3,000 from £2,500.

He also imposed a 45 per cent levy on what are deemed to be extraordinary profits made by firms that generate low carbon renewable energy such as ScottishPower and SSE. These have enjoyed a big boost to their profitability from the fact that electricity prices are linked to gas prices.

The levy will also hit nuclear generators including Centrica, which owns Scottish Gas.

With the likes of Shell and BP posting bumper profits after Mr Sunak made his move in May the perception was that talk of windfall taxes putting pressure on firms was just not credible.

Industry players have not helped themselves by continuing to make huge payouts to investors. Centrica announced plans for £250m share buybacks earlier this month.

Amid perceptions energy firms could claim no credit for the huge increase in their profits that was due to the surge in gas prices the onus was on them to show that society would benefit commensurately from their good fortune. Despite lots of talk about supporting the energy transition they have not done this.

A range of firms said they would invest in North Sea assets but that had the effect of undermining claims the windfall tax would stop operators from generating good returns over the long timescales involved.

Shell paid £32m to buy control of the undeveloped Victory find off Shetland.

North Sea production assets have remained in demand despite expectations of windfall taxes.

Last week Shetland oil pioneer Hurricane Energy said it had received multiple expressions of interest after putting itself up for sale recently.

Shell inadvertently strengthened the case for a windfall tax rise after disclosing that it did not expect to pay anything in respect of the original levy until next year at the earliest.

That reflected the benefit of the generous investment allowance Mr Sunak introduced in May, under which firms can get a tax saving worth around 90p for every pound spent on new projects.

Mr Hunt tweaked the allowance but environmental campaigners at Greenpeace said it remained an incentive to fuel the climate crisis.

Renewables champions were furious that Mr Hunt did not introduce a similar allowance for windfarm operators and the like and decided the 45% levy they will face will not apply to gas-fired power generators.

ScottishPower chief executive Keith Anderson said: “It seems it’s a recession made by gas, but a recovery to be paid for by renewables.

“Imposing this scheme to March 2028 creates a five-year long corridor of uncertainty for investors – hitting the clean energy projects we need more of.”

However, the levy was not as tough as some analysts expected and shares in SSE and Centrica closed up on Thursday.

Returns on many renewables projects are underpinned by the Government through the Contracts for Difference system.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, observed: “Companies could be hit by ethical investor headwinds if funding of greener cleaner projects is scaled back at a time when large dividends are still paid out.”

In response to the announcement SSE said: “A well-designed levy on extraordinary profits, where they are actually realised, is reasonable”.

The company said it had a potential £24bn pipeline of shovel-ready projects in the UK and would work constructively with the Government to see how the new tax will work in detail.

Entrepreneurs still seemed keen last week to back North Sea oil projects.

While environmentalists appeared unimpressed that Mr Hunt increased incentives to invest in renewables to help electrify offshore oil and gas assets, the firm leading plans to develop the 80 million barrel Pilot field, Orcadian Energy, said the move was great news for the project. It is expected to use a floating wind turbine to reduce emissions.

Orcadian’s chief executive Steve Brown said: “Increasing the windfall tax to 35% is a positive step for our domestic energy security. The Government has a duty to ensure the British people have enough fuel to heat their homes affordably.”

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