With reports of discussions in Westminster between the UK Treasury and oil industry representatives ahead of next week’s Spring Statement, Hall Morrice Partner Chris Colville asks whether there is a genuine prospect of change on the horizon.
Put bluntly, the Energy Profits Levy (EPL) is driving investment out of the UK oil industry. Capital is moving elsewhere, where companies believe they can achieve bigger profits and lower tax rates – and who can blame them? At this point, the so-called windfall tax risks costing the UK Treasury more than it generates, and here in the North East we are all acutely aware of the seriousness of its consequences.
It is my prediction that the government won’t want to appear to abandon the EPL outright, but in theory they could change it with effect from the beginning of the new tax year in April. How realistic is that? A handbrake turn seems unlikely given how strongly they’ve doubled down on the policy in the past, but recent history shows that even firmly held tax positions, such as the recent announcements on inheritance tax reliefs, can be subject to change.
It all seems to smack of short-termism and a failure to grasp longer-term consequences.
For many here in the North East, an end to the windfall tax can’t come soon enough: anything that accelerates its removal would be a positive step for the region.
It’s all very well trying to change energy behaviour through taxation, but the economy is hardly in a strong enough position to give policymakers choices about where revenue is raised. There’s no point in making the tax rate so high that the tax revenue actually goes down – or if that is what they are doing, they need to come out and state it. Whilst we can’t change the past, we can hope (and press) for change sooner rather than later in the hope that it can make a difference of some kind.
For now, all eyes are on next week. Any announcement could have significant trickle-down implications for investment and financial planning. As ever, flexibility and the ability to be financially fleet-of-foot in shifting sands will be the name of the game for local businesses.
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