Sunak denies 'syphoning' oil and gas profits to 'bankroll' Treasury plans

24 June 2022, 09:26

The Chancellor Rishi Sunak on a visit to Aberdeen.
The Chancellor Rishi Sunak on a visit to Aberdeen. Picture: HM Treasury

By Gina Davidson

Rishi Sunak has denied “syphoning money” from the oil and gas industry and failing to support Aberdeen as the city battles to transition to net zero while keeping people in jobs.

On a visit to the north east of Scotland city the Chancellor told LBC the UK government was pumping billions into new technology which would benefit the region, as well as Scotland and the rest of the UK.

He also said that people struggling with the cost of living crisis - despite being in work - would soon be £300 a year better off when the new threshold for paying National Insurance is raised next month.

That move comes after he announced a hike in National Insurance of 1.25 per cent across the board to pay for investment in the NHS and social care.

However he failed to take up Aberdeen South MP Stephen Flynn’s offer to visit local foodbanks or say why the Acorn carbon capture project had failed to get government support.

Read more: Holiday hell at Heathrow: Millions face summer travel misery after BA staff vote to strike

Mr Sunak was in Aberdeen to meet with oil and gas company chiefs, hosting a roundtable and a Treasury Connect session to answer questions from staff. He admitted that his windfall tax on their profits had been a topic of intense discussion.

“I know people are worried about the rising cost of living. And that’s why weeks ago we announced a significant amount of support to help families across the country with everyone getting help, but the most vulnerable in our society receiving around £1200 of support,” he said.

“Part of the way we funded that support is with a new levy on the profits of oil and gas companies. I’ve been talking to those companies today about that, but also making sure that they continue to invest in the UK because that’s good for our energy security, good for jobs, and we’ve designed the levy to incentivise that investment.”

Asked if he had received concrete pledges of that investment he added: “I think we had a constructive conversation where the focus is on the future.

“And the industry is keen to transition to net zero and they’re keen to invest in the UK but they want to make sure that we are supporting that ambition. And that’s why this levy contains within it a very generous incentive for companies to invest. So for every pound that these companies invest they will receive over 90p of tax reduction. So the more they invest the less tax they will pay. And I think that’s something that everyone acknowledges.”

However, Deirdre Michie, Offshore Energies UK's chief executive, said the hard reality was that the new tax would undermine the industry.

She said: “The Energy Profits Levy is an unexpected new tax that changes the basis for investments. We had a candid and constructive meeting with the Chancellor to discuss these issues and our industry leaders were clear about their concerns, especially the impact on investor confidence. Both sides have committed to further discussions.

“We will work constructively with the UK government and do our best to mitigate the damage this tax will cause but if energy companies reduce investment in UK waters, then they will produce less oil and gas. That means they will eventually be paying less taxes and have less money to invest in low carbon energy.”

Mr Sunak said there was a focus on the energies of the future “whether that is hydrogen, or offshore wind, or carbon capture and storage technology. There’s fantastic opportunities ahead for us as a country and we want to make sure that we capitalise on those.”

However the SNP accused him of using the North Sea oil and gas sector to bankroll the Treasury, without giving enough support back to the area.

Its shadow Business, Energy and Industrial Strategy spokesperson, Stephen Flynn said: “Rishi Sunak is visiting a city that has bankrolled his government to the tune of nearly £400bn over the years, but he has failed to deliver tangible support following the 2020 downturn and he has stalled on support for our Just Transition.

“The Chancellor has the flexibility because of the taxes generated in the North East to properly invest in our Net Zero future and to put cash in the pockets of families who have been hit hard by his cost of living crisis – his visit to our city must be a turning point.

“We are the Oil and Gas capital of Europe, but if we are serious about becoming the Net Zero capital of Europe then we must be top of the list for investment.

“The Chancellor has a cheek to say he champions the future of energy in the North Sea. For too long his government has syphoned off profits from Scotland’s resources while failing to invest in our energy sector and Net Zero future – the reality is Scotland has the energy, it just needs the power.”

Mr Sunak denied the claim: “The government has done an enormous amount for Aberdeen and Scotland and the energy industry as well. We are funding carbon capture and storage clusters across the UK and will announce more to come in the future with a billion pounds worth of support. That’s enormous and world leading in fact.

“Countries around the world are looking at us and saying that we’re a leader in that type of technology.

“And for Aberdeen and this region, they’ve received funding through various government programmes where the UK government has invested directly - for example £20m in Aberdeen marketplace and then also around £150m in partnership with the SG to drive growth in the region through initiatives such as a bio hub for life sciences companies and expansion of the harbour and other initiatives like that.

“And we’re supporting the region with a transition deal, to help the industry transition to the future. That’s been backed up with millions of pounds of funding and we talked a lot about that today with employees in the sector.”

Asked about the impact of the record breaking inflation rise, he said he knew people were “worried” and the government was investing £37bn to help.

“To put that in perspective, every family in this country is going to be receiving some support - for the most vulnerable that’s around £1200 of help to get through the months ahead.I know that will make a difference.

“And in just a few weeks time tens of millions of people in work are going to receive a tax cut when we raise the National Insurance threshold meaning you can ean £12,500 without paying a penny of income tax or National Insurance - that puts hundreds of pounds in the pockets of tens of millions of hardworking people.

“It will be worth over £300 a year to all those people, it will start benefiting their pay cheques in July.”