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What is a windfall tax? Government urged to impose one-off levy on oil and gas giants

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Speaking at the organisation’s annual conference in Aberdeen on Tuesday, Deirdre Michie, Offshore Energies UK (OEUK) chief executive said: “Right now, the windfall tax debate is at the top of an agenda-driven by politics.

“It means we are facing the threat of punitive taxes and regulations, just at a time when the UK needs to focus on long-term issues like energy security and working for net-zero.

“Our belief is that stability in the way we are taxed and regulated is what allows us to promote investment, create jobs and generate taxes that can be used to help with the cost-of-living crisis, while at the same time, getting the balance right in terms of ensuring the nation’s energy security.”

Is it fair to call on the Government to issue the tax?

In the first three months of the year, BP’s underlying profit more than doubled to £4.8 billion – although this is said to have been cancelled out as a result of its decision to retract its investments in Russian oil firms.

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During the same period, Shell’s profits nearly tripled, securing its biggest quarterly profit ever of £7.3 billion. Although similar to BP, pulling out of Russian oil investments had cost it £3.1 billion.

However, the companies have both spent billions on ‘share buybacks’ and also pay out relatively high dividends, which many would object that issuing the tax could negatively impact these investments.

Has a windfall tax been issued before?

The most well-known windfall tax issued in the UK was when Labour Chancellor Gordon Brown placed one in 1997 on companies formed after the Conservative governments’ earlier privatisation of nationalised industries.

The tax was predicted to have raised up to £5.2bn over two years according to the Institute of Fiscal studies.

Conservative Chancellor Geoffrey Howe issued a similar one-off levy on banks in 1981, arguing they had benefited from high-interest rates. This was expected to raise £400m (equivalent to around £3bn in today’s money).

Is the Government likely to issue a windfall tax?

Mr Johnson has previously said a windfall tax would deter investment, however, he has recently said “no option is off the table” if firms do not invest enough in new projects.

Although, Mr Johnson has said it is better for companies to invest the money into renewable energy rather than pay an extra tax.

Business Secretary Kwasi Kwarteng said any decisions on a windfall tax on oil and gas firms were matters for Chancellor Rishi Sunak.

Mr Kwarteng said: “I’ve been very clear about a windfall tax. I don’t think it supports investment, I don’t think it’s necessarily the right thing.

“But as I always say, that’s up to the Chancellor. He sees the economy across the piece, he is responsible for fiscal policy.

“He is instinctively against a windfall tax but if he feels that these extraordinary times require extraordinary measures, that’s up to him.”

However, Simon Clarke, chief secretary to the Treasury told Sky News the Government does recognise the “real challenge for households up and down the country” which is likely to worsen again in the autumn when the energy price cap rises again.

He said: “On the concept of a windfall tax itself, we are very very clear that there is a real need at a time when the industry is making very significant profits to see those profits reinvested in new offshore installations – getting more out of the North Sea, which is obviously vital in terms of energy supply but also good for jobs and the wider economy.

“If we do not see that investment materialise then we are very clear that all options are on the table.”



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