THE CHANCELLOR has been accused of offering oil and gas companies a “perverse incentive” after doubling their tax relief for investing in new North Sea projects.

The move comes after the UK Government said it would tally up £5 billion from a windfall tax on oil and gas companies – but firms could avoid much of the charge if they invest in North Sea projects.

Energy companies already pay 40 per cent of their profits in tax, but the extra levy announced by Chancellor Rishi Sunak will bring this up to 65% until December 2025.

The added tax bill might also be phased out before then if oil and gas prices return to more normal levels, although when contacted the Treasury refused to say what these normal levels are.

READ MORE: Rishi Sunak doubles energy bill rebate to £400 as he u-turns on windfall tax

But companies can also avoid almost all their tax bill after the Chancellor doubled the relief they can get for investing in new oil and gas extraction.

In the past companies could receive 46p of tax relief for every £1 they invested in the UK, this will rise to 91p.

Mr Sunak said: “Like previous governments, including Conservative ones, we will introduce a temporary targeted energy profits levy, but we have built into the new levy … a new investment allowance similar to the super-deduction that means companies will have a new and significant incentive to reinvest their profits.”

The initiative has sparked fears from environmental campaigners that more oil and gas will be extracted from the North Sea despite a net zero target of 2050 for the UK and 2045 for Scotland.

Tessa Khan, director of Uplift, warned the relief “will only worsen the climate crisis and lock us into unaffordable energy bills”.

She added: “The majority of North Sea oil and gas companies are not investing anything in UK renewables and the investment loophole in the levy will only make this worse.

“The UK public should not be subsidising more fossil fuel production, when the only beneficiaries will be oil and gas companies.”

Scottish Greens finance spokesperson Ross Greer said: “The Chancellor has provided a perverse incentive for oil and gas companies to double down on their climate-wrecking activities.

“Big energy companies will be allowed to dodge the windfall tax if they spend more money drilling for oil and gas in UK waters, despite clear warnings that the planet is at its tipping point and needs to move away from fossil fuels immediately.

“At a time when the UK should be investing in renewable energy and energy efficiency programmes such as home insulation, proven ways to bring down bills, the Chancellor is doubling down on expensive fossil fuels.”

But the North Sea oil and gas industry has warned the windfall tax measures outlined by the Chancellor will discourage investment.

Deirdre Michie, Offshore Energy UK chief executive, said: “This is a disappointing and worrying development for industry, the shockwaves of which will be felt in offshore energy jobs and communities, and by consumers, for years to come.

“In April we welcomed the government’s British Energy Security Strategy, which pledged ‘secure, clean and affordable British energy for the long term’. We thought long-term meant years or decades, but it seems to have meant just a few weeks.”

She added: “The strategy’s focus was on attracting investment to build a greener energy system to reduce dependence on imports. These new taxes will achieve the exact opposite of what the government promised in April.

“They will drive away investors and so reduce UK energy production. That means less oil, less gas, and less renewables. It also makes it much harder for the UK to reach net zero by 2050.”