Chancellor Rachel Reeves has increased headline rate of tax on oil and gas firms to 78% until 2030 in what was described as a "difficult day" for the North Sea.
However, there was a minor reprieve for the sector with confirmation that plans to reduce capital allowances have been scrapped.
Aberdeen & Grampian Chamber of Commerce welcomed the concession on first year allowances - but has urged the UK Government to accelerate its move to a new long-term fiscal regime which better supports jobs and investment.
Delivering her budget on Wednesday, the chancellor announced the windfall tax on North Sea producers will increase from 35% to 38% and extended it a year to March 2030. This will bring the headline rate of tax paid by operators to 78%.
The levy’s 29% investment allowance, which allows companies to offset tax from capital that is re-invested, will also be scrapped, Ms Reeves confirmed.
However, the capital allowance (100% first year allowance) is being retained. After some warnings this would be reduced, keeping operators up at night, its retention is a lifeline for certain projects.
Alongside yesterday's Budget, a consultation was launched to asses what the successor regime to the Energy Profits Levy should look like - change which the industry says are crucial
Russell Borthwick, Chief Executive at Aberdeen & Grampian Chamber of Commerce, said: “We welcome the commitment to 100% first year allowances for oil and gas investment, something we have campaigned for, and confirmation of the initial funding Great British Energy. These are signals that the government is listening, although the devil will be in the detail.
“However, there is no justification for a super tax on ‘windfall profits’ which no longer exist in a world where the oil price has returned to $70.
“The damage being done to the North Sea is clear for all to see. In the past week alone one major has put the for sales signs up on six fields, another has reported a 30% dip in profits and we have one operator paying millions to relinquish a licence rather than develop a loss-making field.
“Without significant long-term reform, this is not a fiscal foundation for growth; it is quicksand through which a world class industry and its supply chain could disappear.
“Therefore, we need to see a successor regime to the Energy Profits Levy accelerated to provide industry with confidence to invest in the oil and gas we need today, and the energy transition which will power our future.
“We urge the government to work with industry to design a new tax approach that secures billions of investment and tax receipts, while protecting the jobs of tens of thousands of working people.”
David Whitehouse, CEO Offshore Energies UK, said: “Today
we heard the Chancellor recognise the role of the oil and gas sector to support
high quality jobs and strengthen the UK’s energy security. We welcome that and
the meetings and dialogue which have taken place between industry and the new
government.
“However,
with an increase in tax despite commodity prices at recent lows, there is no
hiding that this is a difficult day for the sector."
He added: “We
welcome that the government will consult in early 2025 on how the oil and gas
tax regime can encourage investment and respond to changes in the oil price. We
also note the consultation on end use emissions for oil and gas projects."
Graham Kellas, Senior Vice President, Global Fiscal Research at Wood Mackenzie, said: "North Sea companies will be relieved that the government has not followed through on its intention to reduce the EPL capital allowance. This is likely to allow minor near term investments to proceed. But the EPL remains deeply flawed and industry feels it is inappropriate for larger, longer term developments.
"Attention will now turn to finding a successor to the EPL that is predictable and fairer. The good news is that government appears to be listening to the industry's concerns and where there's a will, there's a way."