The government faces making a loss of more than £100m if drilling at the UK’s largest undeveloped oil field is approved, according to new research examining a tax break introduced by Rishi Sunak.
Sunak performed a dramatic U-turn last May when he introduced the “energy profits levy” as chancellor – effectively a windfall tax on energy producers. However, he also introduced a very generous tax break for fossil fuel producers to ensure that “the more investment a firm makes, the less tax they will pay”.
According to research seen by the Observer, it could contribute to a £114m loss for the government over the lifetime of the North Sea’s Rosebank field. It will heap pressure on Sunak, who has already demoted the role of climate change minister and stated he will not attend the Cop27 meeting in Egypt. He is under pressure to sanction a significantly expanded windfall tax as part of next month’s medium-term fiscal plan.
Permission to develop the Rosebank field, to the west of Shetland, has been sought by Equinor, Norway’s state-owned oil company. Equinor has said it hopes to take a final investment decision by next year.
When all the set-up and decommissioning subsidies and tax breaks are taken into account, new analysis from WWF Norway suggests the UK government will make a loss of around £100m on Rosebank. “The UK government would have been better off with the previous tax regime – before the windfall tax and its loophole were introduced – which could have secured an additional tax income of £508m,” said Guro Lystad, a senior adviser on climate and energy at WWF Norway.
Equinor currently operates just three oil and gas fields in the UK, two of which are cross-border projects with Norway. The UK public will effectively cover 91% of the costs of developing Rosebank as a result of the subsidies and tax breaks handed to developers, the research stated.
Tessa Khan, director of the Uplift campaign group, said: “If this government approves Rosebank, the UK public will be poorer while the Norwegian public, which owns most of Equinor, will be richer. It’s as simple as that. The prime minister needs to close this gaping loophole in the current windfall tax, which he introduced.”
An Equinor spokesman said no final investment decision had been taken, adding: “The notion that the UK public will pay anything to Equinor and its Rosebank partners is plainly wrong. In the Rosebank socio-economic report, developed by WoodMac this summer, it was estimated that Rosebank will create £8.1bn of direct investment, of which £6.3bn is likely to be invested in UK-based businesses.
“If we do not develop Rosebank, the demand remains and the UK risks being more dependent on imports (which come with a higher CO2 footprint) while also losing jobs, industrial and supply chain development, as well as future tax revenues.”
A government spokesperson said: “There will continue to be ongoing demand for oil and gas over the coming years as we transition to cleaner, lower carbon energy – this ensures we protect British energy security, jobs and industries, without becoming more dependent on foreign imports. The Energy Profits Levy, which comes on top of an existing 40% headline rate of tax for the industry, is expected to raise £17bn this year and next to help fund cost of living support for eight million people. We also want to see the sector reinvest its profits to support the economy and future energy security.”