RISHI Sunak has rejected criticism that his windfall tax on the profits of energy companies will “undermine the industry” and lead to less oil and gas being produced in the UK.

Speaking to The Herald after holding a number of meetings in Aberdeen, the Chancellor defended the policy and said he believed the government had got “the balance right”.

Last month, in his emergency cost of living statement, the Chancellor unveiled a £5bn Energy Profits Levy as a means of funding a package of support for struggling households.

He defended the charge at the time saying it was a tax on the sector’s “extraordinary profits” due to the “surging global commodity prices driven in part by Russia’s war.”

However, a number of firms have been critical of the measure. 

Asked what the response had been at the roundtable, Mr Sunak said he had been grateful for the opportunity to say “thank you to all the staff and their companies for the important role that they play.” 

He added: “They're an integral part of the UK economy. They support lots of jobs, not just here in Aberdeen, but across the country actually. And they're going to play a vital role in helping us improve our energy security in the short term, and indeed help us transition to net zero in the long term.

“And with regards to the levy, it's important to me and I think the country that we fairly tax the profits of energy companies, particularly when they are experiencing profits that are temporarily very high in part based on a war in Ukraine, Russia's aggression and our right response to that. 

“And I think people understand that and accept that it's reasonable then to look at those profits and to make sure that they're taxed fairly, but alongside that, I wanted to make sure that we continue to provide an incentive for the industry to keep investing.”

He pointed toward the “very generous investment relief” that will run alongside the EPL. 

“We've never seen anything like this before. And it means that for every one pound the industry invests they get over 90p off their tax bill, so the more they invest, the less tax they pay. 

“I think that's the right approach to take to this and it was good to be able to discuss that with everybody.”

Mr Sunak said he was happy to listen “all sorts of different companies in the roundtable, upstream, downstream supply chain, small, big, medium. It's good to just get feedback. 

“The general principle of what we're trying to achieve stands. I think the way that we've designed the investment incentive can benefit anyone who's investing and that's a good thing. And it's right to tax the profits fairly. And I think we've got the balance right on that. 

“And I know these will always be difficult conversations, but I think that the more important thing to focus on because this will, of course, be a temporary levy that will only be with us for a short period of time, is actually the longer term story for the industry. 

"And that's why it was really good to talk about today as well, that

“I'm very clear that the sector has a really important role to play, particularly in the short term with improving energy security and getting more oil and gas from home, that's really vital to help us make the transition over time to net zero. 

“And we mustn't lose sight of the fact that the transition is really important as well.

"There's a really exciting future which many of these same companies are also involved in, which is carbon capture and storage, hydrogen, offshore wind.

"And there, I think, everyone acknowledges, and certainly the companies I've met with today, all acknowledged the government there is doing an enormous amount, and actually one of them described it as ‘world-leading’ in terms of our approach to those new industries and the support that we're giving to places like Aberdeen and Scotland to help make that transition.”

The Chancellor refused to be drawn on reports that he had dropped plans to expand the levy to cover electricity generators. 

He said the government would “try and come to a decision as soon as possible so we can provide certainty and clarity to the sector and that's what we intend to do.” 

Deirdre Michie, the chief executive of industry body, Offshore Energies UK said the hard reality was that the new tax would “undermine the industry.”

She said: “The Energy Profits Levy is an unexpected new tax that changes the basis for investments.

"We had a candid and constructive meeting with the chancellor to discuss these issues and our industry leaders were clear about their concerns, especially the impact on investor confidence. 

“Both sides have committed to further discussions.

“We will work constructively with the UK government and do our best to mitigate the damage this tax will cause but if energy companies reduce investment in UK waters, then they will produce less oil and gas. 

“That means they will eventually be paying less taxes and have less money to invest in low carbon energy.”

Commenting, the SNP's Shadow Business, Energy and Industrial Strategy spokesperson, Stephen Flynn, said: "Rishi Sunak talks of an exciting future for carbon capture, hydrogen and offshore wind when in reality he snubbed the North East’s CCUS bid, he failed to back Aberdeen’s hydrogen hub and he forces our renewables firms to pay the highest grid charges in Europe - it's doublethink from the Chancellor.  

"Notwithstanding the fact that he spurned the chance to match the Scottish Government’s £500m Just Transmission Fund, he has no credibility when visiting our city which, let’s not forget, has contributed a near £400bn to Westminster coffers over the years with very little coming back the other way. 

"Rather than syphon off revenues from our natural resources and sit on his pile of cash, Rishi Sunak should back our Just Transition and support hard pressed households."