(Bloomberg) -- The new UK government followed through on its pledge to toughen up the tax regime for North Sea oil and gas producers, increasing a windfall levy and ending some investment allowances.
After a speech to the House of Commons on Monday in which Chancellor Rachel Reeves disclosed a £22 billion ($28 billion) hole in the UK’s finances inherited from the previous government, the Treasury released a policy paper detailing oil and gas tax changes.
The Energy Profits Levy, a windfall tax introduced in May 2022, will increase to 38% from 35% on Nov. 1, according to the paper. A 29% investment allowance deemed by the new government to be “unjustifiably generous” will be withdrawn on the same date. The period over which the EPL applies was extended by a year to the end of March 2030.
The windfall tax was introduced in the aftermath of Russia’s invasion of Ukraine, when soaring oil and gas prices delivered exceptional profit to producers such as BP Plc and Shell Plc. The investment allowance was included in the levy to encourage companies to keep developing new projects in the UK by letting them claim back some of the money spent on exploration and extraction.
Offshore Energies UK, the industry lobby, said the tax changes threaten jobs across the industry.
“We recognize the government has significant spending challenges to manage, but today’s announcement will only serve to rock confidence further,” OEUK said in a statement.
An investment allowance of 80% for expenditure related to decarbonization, which the government argued was key to the industry’s transition to net zero emissions by 2050, was unchanged.
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