Ithaca Energy have announced their investment in its North Sea oil and gas portfolio “has and will reduce” as a direct result of the government’s windfall tax, which now whacks energy firms with a raid of up to 75% of their profits. And would go even further under a Labour government…
The company say the fiscal uncertainty and punitive tax policies are forcing it to reduce production for next year. CEO Gilad Myerson said today:
“We continue to constructively engage with the UK government to highlight the impact of the current fiscal regime to the industry’s outlook and to the UK government’s stated energy security and net zero ambitions.”
Shell have already admitted the tax may cause them to withdraw their £25 billion investment in UK energy for the same reason. The government can’t tax its way to energy independence or cheaper bills. Who knew?
After last week’s advert claiming Rishi Sunak doesn’t want to lock up paedophiles, the latest attack ad is a bit more reality-based. A bit. It claims fairly that the Tories have raised taxes 24 times and the British people face the highest tax burden in 70 years. So far, so reality based. The claim that is less plausible is that an energy windfall tax will pay for a freeze of council tax. The same windfall tax that has been pledged for so many other spending commitments.
Taxes, as Nigel Lawson often reminded us, pay for spending: if you want lower taxes, you need lower spending. The problem with Labour adopting the rhetoric of the Taxpayers’ Alliance is that, as a shadow minister told the i’s Paul Waugh, totting up all the spending pledges meant “a f****** £700 billion price tag”.“In theory, we are only committed to £280 billion over 10 years but the climate investment pledge can’t pay for everything we’ve said on Northern Powerhouse Rail or full HS2 – we are committed to both.” It is fantasy economics that Rachel Reeves will not be able to bluff and bluster about for much longer.
The advert references closing the non-domicile “loophole”. Foreigners coming to spend and invest in the UK do so on the understanding that their foreign earnings will be outside the jurisdiction of the UK tax regime; their income and remittances to the UK will be taxed just like everybody else’s in Britain. That’s not a “loophole”, that is a sensibly-designed tax principle that encourages foreigners to create jobs and boost the British economy with inward investment. Gordon Brown understood this and left the rule in place for all his time.
Norway’s centre-left government has just discovered what happens when you try to squeeze the super-mobile wealthy. The wealthy are leaving and the government seems shocked. Billions in lost revenue will now have to be made up for by people on lower incomes. There is a lesson here.
With Labour’s latest announcement that they plan to freeze council tax for a year – funded by a “proper windfall tax on oil and gas giants” – it’s hard to keep up with all of the “fully-costed” spending commitments funded by the same policy. Guido has taken the liberty of collating them for co-conspirator’s benefit:
- Labour would freeze energy bills at September 2022 level of £2,500 funded by a windfall tax on oil and gas companies. Revenue required from windfall tax: £13 billion.
- Labour would freeze energy bills at April 2022 level of £1,971 funded by a windfall tax on oil and gas companies. Revenue required from windfall tax: £8 billion.
- Labour would cut VAT on energy bills, funded by a windfall tax on oil and gas companies. Estimated revenue required from windfall tax: £3.8 billion.
- Labour would create an energy-intensive industry fund of £1 billion funded by a windfall tax on oil and gas companies.
- Labour would give small businesses vouchers to ‘go green’, funded by a windfall tax on oil and gas companies. Revenue required from windfall tax: £700 million.
- Labour would extend small business rates relief, funded by a windfall tax on oil and gas companies. Estimated revenue required from windfall tax: £2 billion.
- Labour would freeze council tax for one year, funded by a windfall tax on oil and gas companies. Revenue required from windfall tax: £2.7 billion.
- Labour would end the penalty imposed on prepayment meter customers, funded by a windfall tax on oil and gas companies. Estimated revenue required from windfall tax: £200 million.
- Labour would ‘supercharge home insulation’, funded by a windfall tax on oil and gas companies. Estimated revenue required from windfall tax: £5 billion.
- Labour would freeze fuel duty, funded by a windfall tax on oil and gas companies. Revenue required from windfall tax: £4.8 billion.
Labour now claims a backdated windfall tax, at an astronomical 78%, would raise £10.4 billion – back in August they were saying it was worth £8 billion and in January they briefed it would raise £13 billion. Even the most charitable reading doesn’t scratch the surface of Guido’s estimate of £43 billion total spending.
Energy giants have already reduced investment with the government’s own initiative. Guido can only imagine the blowback Labour’s plans would have.
French oil company TotalEnergies has announced it will cut back on new well spending in the North Sea next year as a direct consequence of the Government’s windfall tax raid. The North Sea operator announced last night it would withdraw a whopping £100 million from its total investment – roughly a quarter of its spending on new wells – and abandon plans to drill a new well at its gas field off the coast of Aberdeen. Just ten days after Shell announced it was considering a cut to its £25 billion investment in UK energy for exactly the same reason…
This is, of course, despite Rishi claiming it was “vital we encourage continued investment by the oil and gas industry in the North Sea” earlier this year.
And how’s that all going?
Well, Total might not be the last to tighten their belts. Norwegian oil giant Equinor are now mulling whether to scrap their £8bn Rosebank energy project as well:
“The Autumn Statement did not help investor confidence and we are evaluating the impact of the energy profits levy on our projects.”
Equinor had previously claimed the project could provide 8% of the UK’s oil production between 2026-2030. Now it may not go ahead. Still, so long as the government is going after the “super profits” of the oil and gas companies, at least Sir Keir will be happy…
Guido’s old enough to remember when Shell boss Ben van Beurden appeared on-stage at a conference last month and called on the government, quite explicitly, to impose a windfall tax on energy companies. To the delight of Sir Keir, who couldn’t have asked for a stronger endorsement of his flagship policy…
At the time, van Beurden said:
“One way or another there needs to be government intervention. Protecting the poorest, that probably may then mean that governments need to tax people in this room to pay for it. I think we just have to accept as a society – it can be done smartly and not so smartly. There is a discussion to be had about it but I think it’s inevitable.”
As it turns out, van Beurden was right: it was inevitable. Jeremy Hunt obliged and whacked up taxes on companies like Shell last week in the autumn statement. What happened next was just as predictable…
Now Shell’s UK Chief David Bunch says the company’s planned £25 billion investment in UK energy might not go ahead… because of the windfall tax. According to the Telegraph, Shell now “cannot take it for granted” that the plan will go ahead, and they need to “rerun the economics and take a view on a project by project basis.” Be careful what you wish for…
The government has announced a new plan to impose a multi-billion pound levy on green energy firms to fund support to consumers. Renewable and nuclear electricity generators in England and Wales will now have their revenues capped after windfall tax-hating Liz Truss seemingly bowed to pressure to limit profits. The announcement came from BEIS last night, which is calling the new policy a “Cost-Plus-Revenue Limit” and spinning that it isn’t in any way a windfall tax “as it will be applied to ‘excess revenues’ as opposed to profits.”. If it walks like a tax, swims like a tax and quacks like a tax…
The latest backtracking on free market values by the government comes just 41 days after Liz Truss told party members at the London husting that they could read her lips, and there would be no new taxes under her leadership.
Nick Ferrari: “In 2019 listeners to my LBC show heard one Boris Johnson say ‘there will be no new taxes, read my lips.’ Can you say tonight ‘read my lips no new taxes’ on your administration?”
Liz Truss: “Yes.”
On Today this morning, Rees-Mogg tried performing a Jedi mind trick, saying “this is not a windfall tax…this is rationalising the market”…
Despite the government’s denial that the new revenue limit is a tax, the boss of RWE – the third biggest renewable power generator in Britain – has told The Times the move “is a de facto ‘windfall tax’ on low-carbon generators that, if not designed and implemented correctly, could have severe negative consequences for investment in the renewable and wider energy market and so for the energy transition.” Ed Miliband welcoming the policy with open arms should give the government sufficient pause for thought before it buys its own spin…
