Following the extension of a windfall tax on energy companies, Shell UK has said that it is reviewing plans to invest £25 billion in British projects.
The Dutch super major said it would however look at each of its projects on a “case-by-case basis,” after Chancellor of the Exchequer Jeremy Hunt raised the levy on oil and gas profits from 25% to 35% in his autumn statement.
The government forecasts that the tax, which was also extended from the end of 2025 to 2028, will raise £14 billion for the Treasury next year to help pay for support for people’s energy bills.
“We’re going to have to evaluate each project on a case-by-case basis,” said Shell’s UK chairman, David Bunch reportedly told the Confederation of British Industry’s annual conference in Birmingham on Monday.
“When you tax more, you’re going to have less disposable income in your pocket, less to invest.”
The tax is called ‘windfall tax’ because it targets bumper profits that firms had not expected to make or were not responsible for. It takes the total levy paid on oil and gas profits to 75%, among the highest in the world.
But companies can deduct most investments in new oil and gas projects from the tax. And for many, profit made in the UK is a small part of their operations. Shell has said it does not expect to pay any extra tax this year given heavy investment in the North Sea.
“I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices. But any such tax should be temporary, not deter investment,” Hunt told the Commons
Early this year, it will be recalled, Shell announced its plan to invest £20billion to £25billion over the next 10 years in Britain’s energy infrastructure including oil and gas, offshore wind, electric vehicle charging and hydrogen.
“We outlined an investment package five months ago of £25billion, and the one thing I said was we really need a stable fiscal environment to make sure we can get that investment out of the door,” Mr. Bunch had said.
“Since then, we have had three budgets, a couple of prime ministers, so it’s welcome to see some stability. But we are going to have to look at each of those projects on a case-by-case basis and re-evaluate them, based on the current fiscal outlook, and that will determine whether or not we invest at the amount we previously discussed.”
Last month, Shell announced its second highest quarterly profit on record thanks to soaring energy prices. Underlying income hit $9.5billion (£8.2billion) in the third quarter — more than double the $4.2billion it made in the same period last year.
However, it was lower than the record $11.4billion profits it recorded in the second quarter, between April and June, after oil prices surged to $120 a barrel.