Oil & Gas

Shapps eyes windfall tax on ‘unexpected profits’ ahead of Autumn Statement

Questioned on the possibility of further windfall taxes on fossil fuel profits, business secretary Grant Shapps hinted the measures could form part of the upcoming Autumn Statement.

Appearing on Sky News on Monday morning Mr Shapps was asked whether record fossil fuel profits should be subject to a windfall tax and whether this would form part of the Prime Minister’s policy discussions during COP27.

Mr Shapps suggested the question was intended to reveal part of the contents of the upcoming Autumn Statement, which he said would be revealed “very shortly”.

However he acknowledged that: “It is the case that because fuel prices have been so high, there have been unexpected profits, of course.

“But I think it’s important that we do carry on investing in making sure not fossil fuels, but on the renewable energy as well, that we’ve got the capacity, we’ve got the ability to get that market moving as well.”

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He pointed to investments in Green Lithium’s refinery in Middlesborough, which today secured government backing and a visit from the business secretary. The site – the UK’s first large-scale merchant lithium refinery – is expected to produce up to 50,000 tonnes of battery-grade lithium a year.

Mr Shapps’ comments come as reports suggest Chancellor Jeremy Hunt is considering an expansion of the existing Energy Profits Levy (EPL) – also known as the windfall tax – to 30%, from its current 25%.

The measures have already resulted in significant returns to the Exchequer, with figures from the Office for National Statistics and compiled by the Aberdeen and Grampian Chamber of Commerce (AGCC), showing that tax paid in the first nine months of 2022 totalled £7.9bn, up from just over £1bn in the same period the prior year.

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Other measures reportedly under consideration include extending the energy profits levy to electricity generators.

Both moves have been decried by their respective sectors. Last week the head of trade body Offshore Energies UK, Deirdre Michie, said uncertainty and changes to the UK’s tax regime “are driving investment out of the UK and also encouraging some companies to exit the basin.”

In a letter sent last week Ms Michie requested an urgent meeting ahead of the Chancellor’s Statement to discuss the “signals” it had received on further sweeping changes to the levy.

Yet observers have described an extension of the EPL as “likely”.

Charlotte Sallabank, tax partner at Katten UK LLP said: “Given the current energy crisis, it is likely that there will be an extension of the windfall profits tax.”

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“This could be done through extending the scope of the tax to affect not only those companies that extracting oil and gas in the UK, but other key players in the energy sector – for example, the tax may be extended to apply to nuclear and renewable electricity generators as well.

“Another possible option is for the tax rate to increase, there has been some speculation that the rate may increase from 25% to 30%. It is also possible that additional incentives for renewable energy investment may be introduced alongside any amendment to the windfall profits tax.”

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