Rachel Reeves has unveiled a budget aimed at driving economic growth, but it has raised concerns within the energy sector.
The government will increase and extend the energy profits levy (EPL) on oil and gas production to a headline rate of 78% and remove the associated investment allowance.
This move has been met with scepticism from industry leaders, who fear it may hinder investment in the energy transition.The budget includes several significant measures affecting the UK energy industry.
The EPL will be extended until March 2030, with plans for a consultation on a successor regime in early 2025.
Additionally, £125 million has been allocated to establish Great British Energy in Aberdeen, along with £500 million for hydrogen production and infrastructure.
A carbon capture usage and storage (CCUS) decommissioning fund will be created, with tax relief for oil and gas companies making payments into the fund.
The government has also announced the establishment of investment zones in Aberdeen and Glasgow, supporting advanced manufacturing and green industries.
UK Export Finance will now support companies supplying critical minerals for sectors such as EV battery production and clean energy.
This new support targets projects that secure critical minerals from overseas and aims to boost supply chain resilience in key manufacturing sectors.
Grant Morrison, Head of Oil and Gas at RSM, said: “’There is significant concern across the oil and gas sector that current fiscal policy will lead to a black hole’ in the UK’s ability to meet its energy requirements.”
The budget also includes changes that will impact employers in the energy sector and beyond. There will be an increase in employer National Insurance contributions, with the rate rising by 1.2 percentage points to 15%.
The secondary threshold for employer contributions will be reduced from £9,100 per year to £5,000 per year.
These measures are expected to have a significant impact on the energy sector and the broader UK economy, with the Office for Budget Responsibility projecting lower offshore energy capital expenditure and reduced oil and gas production compared to previous forecasts.
