The UK Government is being urged to do more to support families, businesses and the energy transition after new figures revealed a 662% increase in North Sea tax receipts.

Research by Aberdeen & Grampian Chamber of Commerce has found that offshore operators and licensees have been paying an average of £22.1million in tax per day since the start of the year.

That windfall is set to rise even further with the introduction of the Energy Profits Levy (EPL), which increases the effective rate of tax paid by offshore energy firms to 65%, which is more than three-times higher than the standard rate of corporation tax.

The government is now being urged to use this “double windfall” to support consumers and businesses, but also to incentivise investment in the low carbon technologies which will help Scotland and the UK reach net zero targets.

The EPL comes with a tax sweetener – the Investment Allowance – which will see North Sea producers get a 91p tax saving for every £1 they invest in further oil and gas extraction.

Aberdeen & Grampian Chamber of Commerce wants to see the allowance extended to include investment in the energy transition, in technologies such as offshore wind, hydrogen, carbon capture and storage and direct air capture.

What the figures reveal

Between January and June this year, offshore companies paid over £4billion in tax in just 181 days, according to tax receipt data from the Office for National Statistics (ONS).

This is a 662% increase on the previous 12 months, when receipts for the six-month period totalled £526million.

The Office of Budget Responsibility (OBR) recently upgraded its estimates for the fiscal years ending March 2023 to 2027, now predicting North Sea revenues to hit £20.2billion.

This is more than double previous forecasts and excludes the windfall tax, which the Treasury says will raise an additional £5billion in its first year and could run until 2025 if energy prices remain high, although there is no definition of what a high price is in the legislation.

Reaction

Ryan Crighton, Policy Director at Aberdeen & Grampian Chamber of Commerce, said: “Our research shows that with increased receipts and its new profits levy, the Treasury is receiving a double windfall from the North Sea.

“On current trajectory, the tax take from the basin this financial year could be four times higher than the original forecasts done by the Office for Budget Responsibility in 2020.

“Clearly there is sufficient incremental tax revenues to fund the support to consumers and businesses, but also to go further and to inject real pace into the energy transition.

“Failing to include renewables in the Investment Allowance was a missed opportunity and we want to see it expanded to include investment in technologies such as offshore wind, hydrogen, carbon capture and storage and direct air capture – all of which are currently being developed in the North-east of Scotland.

“We need to deliver the reindustrialisation of Scotland to make sure we capitalise on our green energy potential. These tax receipts provide an opportunity to do just that.”

What makes up UK oil and gas taxation?

Oil and Gas companies pay tax profits from production in UKCS at a rate of 40%, comprising both Ring Fence Corporation Tax plus a Supplementary Charge (RFCT/SC). The recently passed Energy Profits Levy takes this rate to 65%, effective from 26th May 2022.

Separately, Petroleum Revenue Tax (PRT) is a tax on the profits from oil and gas production in the UK, but only applies to fields that were approved before 16 March 1993. These are known as ‘taxable fields’.

PRT was permanently zero-rated from 1 January 2016. It was not abolished because some companies still require access to their tax history for carrying back trading losses and decommissioning costs.

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