Windfall tax ‘risks hammering investment’

oil rig

Oil and gas veteran Sir Ian Wood has warned a windfall tax would deter investment in the North Sea at a critical time as experts predicted it would deliver a blow to investment.

Sir Ian Wood said a raid on producers would have a “major negative impact” at a time of concerns around security of supply.

He told BBC Radio 4’s Today programme: “Windfall taxes in the past generally haven’t worked all that well - they’ve been helpful in one year and then there’s been a kind of negative reaction against them and there has to be a corrective period.

“We absolutely must keep our oil and gas industry going for a reasonable period of time, and if we start introducing significant taxation, it will have a major negative impact.

It came as forecasters warned the tax would cause a blow to investment with a risk of even greater long term damage.

Sir Ian led the oilfield services company Wood Group for decades before carrying out a review for the Government in 2013 into maximising economic recovery from the ageing North Sea.

He is now chairman of the Energy Transition Zone, north-east Scotland, which is supporting the shift towards greener technologies such as hydrogen and carbon capture.

Labour has been calling for a windfall tax to help households pay rising energy bills caused by rising gas prices.

The energy price cap climbed 54pc in April pushing average British bills to £1,971 and is set to climb again in October. 

Petrol and diesel prices are also climbing on the back of high crude oil prices.

Rishi Sunak, the chancellor, has not ruled out a windfall tax and is pushing producers to invest to bolster supplies of energy.

Sir Ian said the North Sea oil industry was already going to contribute almost £8bn in taxes this year, “which amounts to about £279 per household in the UK”.

He added: “Next year it looks like it’s going to be something like £5bn, so significant sums of money will be paid anyway.

“Now, of course there’s huge sympathy and concern about the economic hardships families are facing.

“I very much hope the Government, helped by some of the oil and gas tax, will introduce a number of financial benefits to help alleviate [that].”

But he warned there were signs of new investments being made in the basin “but if there’s a negative windfall tax introduced, some of these undoubtedly will be shelved.”

However, economists have warned a windfall tax risks sending a damaging signal to businesses considering investment.

Julian Jessop, economist at the Institute of Economic Affairs, said: “A windfall tax would have a small but negative impact on investment and jobs. The immediate cost would be limited: £3bn in additional tax would only be around 0.1pc of GDP.”

He said there is a risk of a wider impact by sending a “wrong signal to anyone planning to invest in the UK in future”.

“There are already many calls for these taxes to be repeated and income to other sectors, such as online retailers.”

Capital Economics calculates that if a tax took £3bn away from capital expenditure in the North Sea it would be the equivalent of a 1.2pc drop in business investment spent by the oil and gas firms. However, its UK economist Paul Dales said this could boost GDP if it was given to households that needed it.

Karl Thompson, economist at the Centre for Economics and Business Research, said a windfall tax would “likely see some reduction in investment, at a time that it is increasingly crucial for the UK economy and green transition”.

“It may be reasonably asked why a windfall tax is needed at all when, under existing tax plans, the Treasury is expected to receive £7.8bn from oil and gas producers this fiscal year alone.”