Rishi Sunak’s ‘obscene’ tax break for fossil fuel companies ‘will cost taxpayers £1.9billion a year’


Rishi Sunak’s new tax break on investment in oil and gas extraction in the UK will cost the taxpayer around £1.9billion a year, it has been claimed.

According to the New Economics Foundation (NEF) think tank, the tax relief that has been widely criticized by green groups, opposition politicians and even oil executives also risks hurting the public later.

As investments begin to yield profits, the temporary 25% tax on oil and gas profits announced by the Chancellor on Thursday may no longer be in place as it is due to end in 2025.

And after paying 91% of the investment cost, the taxpayer would only claim 40% of the benefit, the NEF said. In effect, the temporary windfall tax raises the total tax rate on oil and gas profits to 65% – so when the tax expires, taxes will drop back down to 40%.

“In the midst of a climate crisis, when we need to end our reliance on high-carbon fuels as quickly as possible, this policy is irrational and destructive,” said Alex Chapman, senior fellow at the foundation who has performed the analysis. “That money would be much better spent reducing the need for fossil fuels by investing in home energy efficiency measures such as insulation and heat pumps.”

The investment incentive also allows oil and gas companies to recoup a portion, potentially up to a third, of the losses they will incur as a result of the new windfall tax.

This is likely to incentivize companies to come up with new oil and gas investments, even when those investments could be loss-making in the long run, he added.

The NEF figures are calculated using Oil and Gas UK’s forecast that £21bn of investment will be postponed over the next five years. It compares the amount of tax relief that would have been received on this investment before the introduction of the new Energy Profits Tax (46p on the pound) with the amount received after the new tax (91p on the pound).

“It’s a bizarre decision to accuse the taxpayer of paying more for oil and gas when they don’t want it,” said Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit think tank. (ECU). “The oil and gas super-deduction is a blow to UK taxpayers and a missed opportunity to boost renewables which are cheaper, more popular and don’t create the pollution that oil and gas does.”

Ms Ralston also said there is a risk that any new oil and gas rigs built will later become a stranded asset, which the taxpayer will then have to pay for decommissioning.

Investment incentive allows fossil fuel companies to potentially recoup up to a third of losses they will incur from new windfall tax


A poll by the ECIU earlier this year found that 51% of the UK public thought more renewables or better insulation was the best way to solve the long-term energy crisis, with just 9% citing the exploration of the North Sea as the solution, and 8% cite fracking as the best long-term solution.

Mark Ruskell, Member of the Scottish Parliament for the Scottish Greens, said it “appears that rather than making fossil fuel companies pay their fair share, public purse will in fact subsidize this climate devastating investment to the tune of nearly of £6 billion. This is obscene.

He added: “The truth is that the big oil and gas companies will take this as a green light from the government to double down on extraction, regardless of climate.”

The “nearly £6billion figure” assumes the government will maintain its investment incentive for three-and-a-half years.

Katie White, executive director of advocacy and campaigns at WWF, said it was “absolutely right” that the government was finally taking action to help people with rising energy bills, but said the country could not afford to lose sight of the climate crisis. “There is no justification for creating new loopholes that will divert taxpayers’ money to subsidize the extraction of even more fossil fuels,” she said.

Responding to the announcement of the windfall tax, Shell said on Thursday it still intended to spend 75% of its planned £20-25 billion investment in Britain’s energy system on products and services to low and carbon free, while BP said it would consider the impact of the new levy and tax relief on its North Sea investment plans.

“As outlined in the UK’s Energy Security Strategy, and with Putin’s invasion of Ukraine illustrating the merit, North Sea oil and gas are going to be crucial to the Kingdom’s energy supply and security. United for the foreseeable future – so it’s fair we continue to encourage investment there,” a government spokesman said.

“The tax’s investment allowance means companies will benefit overall from a tax saving of 91p for every pound they invest and allows for investment in activities to reduce emissions, which could include electrification.

“In addition, there are already many generous incentives available to support investment in renewable energy, including the Super Deduction, the UK’s competitive R&D tax relief scheme and the Contracts for Difference scheme – ensuring that the UK also continues to invest in clean energy.”


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