Chancellor Rishi Sunak is under pressure to clarify details around his windfall tax amid growing fears it could take up to £17.5billion from the North Sea.

Unveiling the “energy profits levy” last month, Mr Sunak said the controversial measure was expected to bring in just over £5billion for the Exchequer in 12 months.

However, official guidance revealed the tax will remain in place until oil and gas prices “return to historically more normal levels” or the activation of a “sunset clause” in 2025.

And with no current definition of what "normal levels" are, there is growing concern that this will be a multi-year tax which, based on current levels, could cost the industry up to £17.5billion.

Companies including BP and Shell have warned the move creates significant uncertainty, with both now reviewing their plans for investment in the North Sea.

And EnQuest is reported to be preparing to invest in South East Asia instead of the UK in the wake of the levy.

'ill-informed debate'

The levy takes the effective tax rate on North Sea oil and gas producers from 40% to 65%.

Speaking in this morning's Telegraph, Aberdeen & Grampian Chamber of Commerce Policy Director Ryan Crighton said it was already making the North Sea less attractive.

“This tax is an ill-thought-out response to what was an appallingly ill-informed debate about the contribution the energy industry already makes to the Exchequer," he said.

“Tax and fiscal stability, above all else, really matter in a globally-competitive investment market, and we've well and truly shot ourselves in the foot.

“This levy has no incentive to invest in low carbon technologies and no clarity around what constitutes a high oil price, which suggests an intent to keep it in place until the sunset clause kicks in.

“By then, £17.5billion could have been taken out of the industry at a crucial point in our net zero journey. It’s hard to think of a policy which would be more harmful to this country’s energy transition.

“The only way to partially undo the damage done by this corrosive tax raid would be to grant Green Freeport status to the joint Aberdeen and Peterhead bid this Autumn. The success of this bid has become mission critical for the region if we are to achieve the huge levels inward investment required for our energy transition."

'Multi-year fears'

Analysts at Wood Mackenzie have warned oil and gas firms to potentially expect to pay the levy multiple times.

Neivan Boroujerdi, research director for North Sea upstream said it was “far from certain” what the Treasury meant by historically normal oil and gas prices and so “fiscal uncertainty in the UK will remain a key issue for investors”.

After the announcement of the windfall tax, BP also refuted claims the levy was a “one-off tax”.

“It is a multi-year proposal,” the company said in a statement. “Naturally we will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans.”

A Treasury spokesman said: "The levy’s investment allowance means businesses will overall get a 91p tax saving for every £1 they invest and allows for investment in activities to cut emissions, which could include electrification.

“In addition, there are already numerous generous incentives available to bolster investment in renewable energy, including the super-deduction, the UK's competitive R&D tax relief regime and the Contracts for Difference scheme – making sure the UK continues to invest in clean energy too.”

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