Treasury ‘whitewashed’ windfall tax to downplay investment risk, say energy firms

One government source admitted: “The major issue with windfall taxes is their unpredictable nature. Businesses want certainty and a windfall tax can make a difference between a project going ahead or not.”

However, an impact assessment produced by HM Revenue and Customs for the Treasury last month suggests the levy will not hit the economy because it has been coupled with a tax relief on new investments.

The analysis stated that while tax increases can “weigh” on the economy,” the “measure is structured to incentivise the affected companies to increase their investment”.

“Overall, taking into account these counterbalancing effects, the measure is not expected to have a significant macroeconomic impact,” it said.

The conclusion has sparked claims that the wider impact of the tax on the UK’s business environment has been ignored.

Need to invest in North Sea

Deirdre Michie, chief executive of the Offshore Energies UK industry body, said there was an urgent need to invest in North Sea oil and gas and offshore wind.

“Sudden changes in the tax regime risk discouraging that vital investment, partly because they reduce profits but mostly because they damage confidence in the UK as a safe place to invest,” she said.

“The energy profits levy impact assessment said very little about these damaging potential impacts and certainly did not reflect the concern felt in our industry about the potential impact on investment and on the nation’s future energy security.”

The tone of the impact assessment stands in stark contrast to a similar analysis produced by HMRC last year on the National Insurance increase, which said the tax hike could impact “family formation, stability or breakdown” by cutting the income of individuals who were “just about managing financially”.

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