More details have emerged of the ultra-tough financial environment which could be in store for North Sea oil and gas producers as the UK Government prepares to unleash a second round of windfall taxes on the offshore sector.
The first round announced in May led to widespread dismay in the industry, amid fears that the multi-billion-pound cash grab could see major investments put on hold or even cancelled.
A new, much-heavier financial burden would certainly increase these worries significantly - especially in Aberdeen, the oil capital of Europe, where the pain in terms of less spending and lost jobs is likely to be felt worst.
The Sunday Times said that the windfall tax on oil and gas producers could be raised from 25% to 30% and extended by three years to 2028, amid internal government predictions that oil and gas prices will not return to normal levels for the rest of the decade.
Officials have also been working on plans to extend the levy to electricity generators.
The North Sea industry has stressed to the new Prime Minister Rishi Sunak the need for a "sustainable and competitive" fiscal regime. But this message appears to have fallen on deaf ears,
Need for stability
Only last week Deirdre Michie, chief executive of trade body Offshore Energies UK, spoke about the requirement for stability in the fiscal and regulatory regimes governing the UK's offshore sector.
She said:"The UK needs to secure billions of pounds for offshore investments if it is to keep producing the gas, oil and offshore wind, plus other low-carbon energies, needed for future growth and productivity, and especially for the transition to net-zero.
"The scale and longevity of that investment means it is critical to establish a sustainable and competitive fiscal regime in the timeframe of this parliament, to secure the UK's energy future."
North Sea oil and gas producers are also puzzled as to why the UK Government is continuing to target the sector with ever-higher cash demands while the country's banking sector continues to escape scot-free.
It appears there are still no plans for a levy on the bumper profits of bankers benefiting from rises in the interest rate.
The Sunday Times says that, while no final decisions have been taken on the November 17 budget, insiders say Chancellor Jeremy Hunt and Mr Sunak are receptive to the idea of a second round of windfall taxes.
Justifying the move
The newspaper goes on to say that Mr Hunt is likely to justify the move on the grounds that the costs of buying energy have more than quadrupled since Covid-19 and the invasion of Ukraine.
According to a government source, before the pandemic the UK was spending £40billion annually on energy. It is due to spend £180billion this year.
Treasury forecasts also suggest that wholesale gas and energy prices, while falling, are expected to remain at an "elevated level" until at least 2030.
The talks are taking place amid wider discussions on how to plug a £40billion fiscal black hole made worse by ex-PM Liz Truss's disastrous mini-budget.
Mr Sunak and Mr Hunt are eyeing a mixture of tax rises and spending cuts to raise more than £50billion, which will be used to plug the gap in the Office for Budget Responsibility forecasts and create at least £10billion of fiscal headroom to allow for a potential downturn in economic growth.
But the Government has quashed suggestions that it is considering a windfall tax on banks.
Banks escape windfall tax
Two senior sources close to Mr Sunak and Mr Hunt played down the idea that they were looking at ways to impose additional taxes on banks.
The news will come as a relief to the City.
The Sunday Times says bankers have been lining up to warn Mr Hunt that any tax raid on the sector would hamper ambitions to bolster the City after Brexit and deter foreign investment in Britain.
When Mr Sunak was chancellor, he had been looking at ways to boost the City, and as prime minister, he is thought to remain keen to give the financial sector a competitive edge.
Sources in Michael Gove's levelling-up department have signalled that Liz Truss's low-tax, deregulatory investment zones are likely to be scaled back or scrapped, after warnings that they could cost the Treasury up to £12 billion in lost tax.
Investment zones
Mr Gove is understood to have been presented with several options, including the possibility of reducing the tax and regulatory perks in the zones, or finding a way to incorporate them into 20 regeneration areas set out in the levelling up white paper this year.
Mr Hunt is expected to write to Whitehall departments in the coming days to ask them to begin drawing up options for significant spending cuts.