Increased windfall taxes on the UK North Sea’s offshore oil and gas producers would cost the UK economy about £13 billion over the next five years and lead to a big fall in UK tax receipts, according to a new report from trade body Offshore Energies UK (OEUK).

The report said that while expected tax take from the sector would increase in the short term, a fall in production triggered by the loss of investment would result in a £12 billion decrease in UK tax receipts.

It said the proposed increase in the Energy Profits Levy (EPL) would see investments in UK projects by oil and gas producers fall from an expected £14.1 billion to just £2.3 billion between 2025 and 2029.

The OEUK report warned that projects being cancelled or deferred as a result of the increase would place 35,000 jobs at risk over the period.

It also said the loss of economic value in the sector would impact UK supply chain companies, and that the country would risk losing capability and infrastructure to other parts of the world.

Under the UK Government’s proposed changes, the Energy Profits Levy would rise to 38% from November 1, which the OEUK says would increase the headline rate on upstream oil and gas activities up to 78%.

David Whitehouse, OEUK chief executive, said: “The Prime Minister has said that the budget will be painful. This industry recognises that difficult decisions will need to be made.

“This is a Government that has made economic growth its main priority and yet our analysis shows that its policy will ultimately reduce this sector’s contribution to the UK economy.

“This paper shows that proposals to go further will trigger an accelerated decline of domestic production, and a corresponding reduction in taxes paid, jobs supported and wider economic value generated.

“With an industrial strategy built in partnership with Government, the UK can leverage the strengths of its offshore energy industry, put homegrown innovation and technology at the heart of its net zero ambitions, and ensure the UK is globally attractive for energy investment.

“For more than two years UK oil and gas operators have paid three times the rate of corporation tax of any other sector in the economy.”

Whitehouse called on the UK Government to work with the sector to find a way to manage offshore energy while protecting jobs.

“Time is running out to mitigate damage that has already been done and to avoid further escalation,” he said.

“The Prime Minister promised to manage the North Sea in a manner that does not jeopardise jobs. We now need an honest conversation on how we can do this and need Government to work with the sector at pace.”

Offshore Energies UK represents more than 400 organisations.

A UK Treasury spokesperson said: “We are committed to maintaining a constructive dialogue with the oil and gas sector to finalise changes to strengthen the windfall tax, ensuring a phased and responsible transition for the North Sea.

“Our plans for a new National Wealth Fund and Great British Energy will unlock investment and create thousands of new jobs in the industries of the future.”

The OEUK report added: “The assessment concludes that most discretionary investment in the sector will be curtailed if all allowances are removed, resulting in a rapid cessation of investment and eventual loss of critical infrastructure.

“This would result in a £49 billion loss of economic value over the coming decades and directly impact jobs across the sector.

“The impact on investment and the policy aims under this windfall tax proposal to increase tax revenues would not endure, and the strategic macro goal of driving economic growth in the UK economy would be at risk.