BP admits windfall tax will not affect its North Sea investments after all

BP has said that the windfall tax on oil and gas operators will not affect its investments in the North Sea, despite warning on the fallout from the new levy.

The former chancellor, Rishi Sunak, announced the energy profits levy in May, which he hoped would generate £5bn to help offset the impact of the cost of living crisis for households struggling to pay energy bills.

Originally, before the announcement, the BP chief executive, Bernard Looney, had said the proposed windfall tax would not have an impact on its £18bn of planned UK investments. However, on discovering the tax would only be phased out when oil and gas prices returned to historically more normal levels or by December 2025, it said BP would review its investment plans.

BP’s UK boss, Louise Kingham, told MPs on the environmental audit committee on Wednesday that, since then, clarification that the levy would definitely end by December 2025 had been “really helpful”.

She said: “We’ve still got a little bit of vagary around the sort of historic price and when we return to the price … so I think that will still hinder some in trying to do the detailed economics for their investment plans. What we know now without all of that clarity is that we don’t think at BP that the profits levy will impact on the investment plans we have in the North Sea.”

The levy included an investment allowance that handed companies 91p in tax savings for every £1 invested in the North Sea during the lifetime of the levy. There are an estimated £8bn worth of projects that could be announced more rapidly as a result.

But the Kingham and Shell UK country chair, David Bunch said the move would not speed up investments. Bunch said it was unlikely to “significantly accelerate” the projects by more than a few months. “These projects are incredibly complex, they are sometimes decades in the planning and approval. So to try to speed them up or slow down is incredibly difficult; they tend to follow the pace that they follow safely in line with the regulatory process,” he said.

The Labour MP Barry Gardiner accused Harbour Energy, the biggest oil and gas producer in the North Sea, of “taking the biscuit” by complaining about the make up of the levy to Sunak when UK tax rates on oil and gas operators were lower than in other countries. The Guardian revealed last month that the Harbour Energy chief executive, Linda Cook, had written to Sunak saying the levy was “seriously flawed”.

Cook argued that investments made in recent years that have only recently entered production should be eligible for the new tax allowances, which were introduced in May.

The business secretary, Kwasi Kwarteng, failed to attend the hearing on accelerating climate action the day after the UK recorded its hottest ever temperatures.