Plans by the UK government to raise the windfall tax on oil and gas profits from 75% to 78% have caused significant concern within the energy sector. This proposed increase, alongside the removal of tax incentives for investment, has raised alarms for companies across the UK’s oil and gas supply chain, threatening jobs and future energy investment.
In an open letter to HM Treasury, 42 companies warned that the government’s move could jeopardise £200bn worth of investments in domestic energy, including renewable energy sources. These companies, representing manufacturing, engineering, and technology sectors, cautioned that the tax changes could have far-reaching impacts across the industry.
The windfall tax, which is set to remain in place until 2030, would increase financial burdens on companies already navigating a challenging economic climate. The letter, coordinated by Offshore Energies UK, expressed concerns that the supply chain would suffer, particularly in regions where the oil and gas industry directly and indirectly supports jobs.
“The tax increase could have a ripple effect across the entire supply chain, endangering jobs and investment in renewable energy projects,” the letter read. “The stability of the oil and gas sector is critical to funding emerging technologies like floating offshore wind and carbon capture.”
The government argues that the windfall tax will ensure oil and gas producers contribute their fair share to the country’s energy transition. A Treasury spokesperson stated that plans for a National Wealth Fund and the establishment of Great British Energy would create thousands of new jobs in sustainable industries. However, the offshore energy sector has voiced concerns that these changes are happening without adequate consultation with the industry.
David Whitehouse, Chief Executive of Offshore Energies UK, emphasised the importance of smaller companies in the sector, saying, “These are not the energy giants, but the backbone of the UK economy, and they are at risk.” He added that the tax changes, without investment allowances, could undermine the potential for a smooth transition to renewable energy.
Comparisons have been drawn to Norway, which also imposes a high windfall tax on its oil and gas industry, but operates within a more stable tax and regulatory framework. In contrast, the UK’s recent tax hikes on oil and gas profits—first to 65%, then to 75%—were implemented in response to surging energy prices following the Russia-Ukraine conflict.
Energy industry insiders have pointed out that while the increase brings the UK in line with Norway, the lack of incentives for investment could hinder growth in renewable energy projects. Harbour Energy, the largest oil and gas producer in the UK, announced 350 job cuts last year, citing the government’s changes to windfall taxes as a primary cause.
As the country approaches the autumn Budget, uncertainty lingers over where future tax increases will come from. Chancellor Rachel Reeves has indicated that taxes may rise, but Labour has also promised not to increase taxes on working people. Investment director Lucy Coutts noted, “Many industries are wondering if they will be next in line for a tax increase, creating nervousness about the forthcoming budget decisions.
