Shell reacts to windfall tax hike saying it is forced to review its £25billion UK investment plans
Shell will review its £25billion investment plans in the UK on a case-by-case basis after the government increased its windfall tax on North Sea oil and gas producers.
David Bunch, UK chairman of the energy giant, said he would seek “changes” to the policy.
Shell is among the operators hit by an increase in the so-called Energy Profits Tax (EPL) last week from 25% to 35%.
Unusual woes: Shell’s UK executive chairman David Bunch (pictured) wants to see changes to the government’s energy profit tax
It was introduced at the lower tier earlier this year to help pay the Government’s energy bill package for consumers and increased in the Chancellor’s Autumn Statement last week after the scale of the package of several billion has expanded.
Bunch told the Confederation of British Industry (CBI) annual conference: “We’re going to have to assess each project on a case-by-case basis going forward.”
He said some producers – those largely focused on the North Sea, unlike Shell which has a much larger operation across the world – would be at greater risk than others.
Windfall tax comes on top of the higher levels of corporation tax that UK oil and gas producers already pay, bringing the overall corporate tax rate to 75%.
It is expected to raise over £40bn over five years. Bunch said he believed the tax was likely to discourage investment from some operators.
“For an independent very focused on the North Sea basin, this can chill the sector a bit,” he said.
Bunch said that while “no one likes windfall taxes”, Shell understands “the role we play in society” at a time when households – some of which are supplied by the company’s home energy arm – have to struggling to pay their bills.
“Nobody should ever have to choose between heating the house or eating,” he said. “It is simply unacceptable.”
Bunch said the levy was “understandable” and that an allowance that means companies can reduce the tax they pay if they invest was “helpful to some degree”.
It means Shell has paid nothing this year, although it expects to be hit with a bill of hundreds of millions of pounds in future under the policy.
But Bunch added: “I would say it’s the second exceptional tax – bonanza 2.0 – and unfortunately what it doesn’t have is a price condition [on crude oil or gas].
As we all know things go down as well as up and the reality is that like all of us when you are taxed more you will have less disposable income in your pocket, less to invest.
“We have charted an investment path of £25 billion, which is, in fact, far more than the cash we are generating in the UK.
“We were reinvesting in green and low-energy wind generation, electric charging, etc.
“So it’s a challenge and we will work and consult with the government on hopefully some changes.”
Brindex, a trade body representing independent oil and gas companies, has previously expressed dismay at the windfall tax hike, saying it will discourage investment and deepen the recession.