Proposals to raise tax on North Sea oil production and cut reliefs on new developments could cost the UK economy £13 billion, a lobby group for the oil and gas sector has claimed.
Offshore Energies UK said that raising the tax on North Sea profits to 78% from 75% and cutting tax reliefs might mean a short-term tax boost but would decimate longer-term investment.
Capital spending over the period 2025-29 would drop to £2.3 billion from an expected £14 billion, cutting the value the sector adds to the overall economy by £13 billion.
Ultimately, the government would collect £12 billion less in taxes over the five years, estimates OEUK.
David Whitehouse, OEUK's chief executive, said: “This is a government that has made economic growth its main priority and yet our analysis shows that its policy will ultimately reduce this sector's contribution to the UK economy.”
OEUK’s report came as another major North Sea development was put on hold due to the proposed tax changes.
NEO Energy said it was slowing down the development of the Buchan Hurst field off the coast of Aberdeen due to the uncertainty over the fiscal and environmental regimes that lie ahead.
As well as the tax changes, the government has new environmental guidelines that necessitate a comprehensive review of Scope 3 emissions in Environmental Impact Assessments after a court ruling.
Buchan is the third-largest North Sea project in development with peak production likely to hit about 35,000 barrels per day.
First production was expected in 2027, but this timeline has now been put back.
Jersey Oil and Gas PLC (AIM:JOG, OTC:JYOGF), one of the partners in consortium, said that Buchan had the potential to produce some of the lowest emission barrels of any project globally.
Doubt has already been cast over developments at Rosebank and Jackdaw in the North Sea after the government dropped its legal defence of the projects following the Supreme Court rulings.
Pensacola, a project like Jackdaw that involves Shell PLC (LSE:SHEL, NYSE:SHEL), is also in question after smaller partner Deltic Energy PLC (AIM:DELT) dropped out after failing to secure funding for its share of the costs.