An aggressive increase in energy windfall taxes could cause a too-rapid decline in UK gas production and could threaten up to 100,000 jobs, Stifel analysts have warned.
The investment bank was analysing the potential impact of Labour chancellor Rachel Reeves increasing the rate of windfall taxes in the upcoming October Budget.
“Higher windfall taxes will force UK gas production into decline faster than the UK can decarbonise through investment in renewable energy,” said Stifel analysts.
“UK gas production is essential in keeping the UK warm by meeting peak residential heating demand in winter, and in meeting peak electricity demand, which makes the UK’s own gas production an essential part of solving the energy trilemma of energy affordability, energy sustainability and energy security for the UK.”
There is currently a 35% Energy Profits Levy (EPL) on gas producers (on top of the 40% tax on profits) in place until March 2028.
Stifel suggested that increasing the EPL will cause UK gas production to decline faster than the UK can decarbonise through investment in renewable energy.
This will necessitate higher gas imports to match supply and demand, leading to lower energy security, according to analysts.
They added: “Even the most optimistic growth in renewable power generation is not forecast to replace gas in the UK energy mix - because around one-third of UK gas demand is for homes and household use, and even in the most optimistic renewables rollout scenario, gas use for residential heating and as back-up for intermittent renewable power generation will still be required into the 2040s.”