AS the prospect of energy bills increasing sharply for millions of consumers fuels calls for a windfall tax on North Sea firms experience suggests that warnings about the consequences should be regarded with caution, whether they come from companies or politicians.

The clamour for tax rises intensified at the weekend when Labour called for a 10 per cent surcharge to be added to firms’ bills this year in a move it said would generate £1.2bn vital revenues that could be used to ease the cost of living crisis.

This is set to intensify from April when it is expected the cap on energy bills will be raised to allow providers to cover the cost of increases in the price of gas on wholesale markets.

The rise has been driven by the recovery in demand following the easing of lockdown measures. It is reckoned to have played a part in the failure of more than 20 suppliers of energy to consumers and businesses.

READ MORE: Householders pay the price as big oil and gas firms coin it in

Labour made its move after a series of companies higher up the supply chain provided graphic evidence of just how much money firms that produce gas have been making following the increase in wholesale prices.

Last week Royal Dutch Shell said the results for its gas division for the last quarter were expected to be significantly higher compared to the preceding three months. The group said it expected to pay $5.5bn to investors shortly under a share buyback programme it would complete “at pace” after paying out $1.5bn in December.

READ MORE: North Sea firms to pay out $1bn dividends after surge in oil and gas prices

In December Harbour Energy and Neptune Energy announced plans to pay out $1bn dividends in total after achieving strong results. Both firms won backing from US financiers amid the last downturn in the oil and gas business for growth strategies which involved buying big North Seas portfolios that firms such as Shell had cooled on.

However, the suggestion that companies should pay over more tax in recognition of the benefits they have enjoyed recently amid exceptional market conditions sparked outrage in the industry.

Sector champions say a windfall tax could jeopardise investment in the North Sea leaving the UK increasingly reliant on imports.

Oil and Gas UK sustainability director Mike Tholen said at the weekend that “opportunistic” calls for a windfall tax were in no one’s interest.

“Oil and gas companies are leading in the development of carbon capture, hydrogen and wind, and investing billions in green infrastructure across the UK,” he said. “A windfall tax will damage investor confidence with long term consequences for the UK economy, UK security of energy supply and the industry’s contribution to developing the sustainable energy solutions of the future.”

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Some might think we have been here before.

The forerunner of OGUK, the UK Offshore Operators Association, issued similar warnings after Gordon Brown imposed a 10 per cent supplementary charge on the profits made by UK firms in 2002.

Entrepreneurs continued to see opportunities in the area following Mr Brown’s move.

The Herald: Gordon Brown, right, pictured with Tony Bair in 2005 when they were serving as Chancellor of the Exchequer and Prime Minister respectively Picture Kirsty Wigglesworth PA Gordon Brown, right, pictured with Tony Bair in 2005 when they were serving as Chancellor of the Exchequer and Prime Minister respectively Picture Kirsty Wigglesworth PA

Former UKOOA president Alan Booth launched North Sea-focused EnCore Oil in 2005 months before Mr Brown raised taxes by a further 10% in a shock pre-Budget announcement.

When Shell and BP threatened to cut North Sea investment in response, the then SNP leader Alex Salmond went on the political offensive.

He declared: “The lesson is clear - Brown’s billions today are being grabbed at the expense of thousands of Scottish jobs tomorrow.

“This is exactly what industry and workers feared when the chancellor announced his smash-and-grab tax raid at the beginning of the month.”

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The Tories’ then shadow Scotland secretary, David Mundell, was also damning.

He said: “The chancellor was warned of the possible dire consequences of his massive tax hike on North Sea oil profits.

“Sadly, these warnings are proving to be true”.

One wonders if Mr Mundell had any input before Tory chancellor George Osborne raised the supplementary tax on production by 12% in the Budget of March 2011.

The chief executive of OGUK at the time, Malcolm Webb, said the change would “decrease investment, increase imports and drive UK jobs to other areas”.

In September of that year Mr Salmond, who by then was First Minister, said North Sea oil firms should be consulted ahead of any new changes to offshore taxation claiming Mr Osborne’s windfall tax on production had caused “great damage”.

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But the next month EnCore was bought by Premier Oil in a £220 million deal that provided a big vote of confidence in the UK North Sea.

In the years after Mr Osborne’s move investment in the North Sea boomed as globalisation powered a surge in demand.

The SNP fought the 2014 independence campaign on the claim the North Sea industry could fuel a bright future for Scotland. It then found the sector plunge into a deep downturn after growth in global supplies ran ahead of demand.

The Herald: First Minister Nicola Sturgeon visits an oil services firm in Aberdeen in February 2015. During her visit she said the UK Government could not ignore calls for urgent tax changes that could spark a “resurgence” in the North Sea. Picture: Danny Lawson/PA WireFirst Minister Nicola Sturgeon visits an oil services firm in Aberdeen in February 2015. During her visit she said the UK Government could not ignore calls for urgent tax changes that could spark a “resurgence” in the North Sea. Picture: Danny Lawson/PA Wire

The Scottish Government led by Nicola Sturgeon formed an Energy Jobs Task Force in response. In July 2015 , she declared: “The Scottish Government is fully committed to the oil and gas industry; it has been a true success story and we are working to ensure it will continue to be so.”

Ms Sturgeon now appears to regard the North Sea oil and gas business with less enthusiasm, as she tries to keep the Scottish Greens onside. She effectively called on the UK Government to block the Cambo development off Shetland, which could have reduced the country’s reliance on imports and created lots of lobs.

READ MORE: Shell boss defends Cambo plan and declares North Sea is 'outstanding' basin

It will be interesting to see what Ms Sturgeon thinks about proposals for the kind of windfall tax that outraged her erstwhile ally, Mr Salmond.

However, the fact is that following reforms introduced by the UK Government to support the industry following the last downturn the regime is seen as being very favourable to firms.

As the industry grappled with the fallout from the pandemic last year, experts at the Rystad consultancy said the UK North Sea is the most attractive basin in the world for oil and gas companies that want to develop big offshore projects on a key measure.

It said tax breaks provided in the UK mean firms can achieve better returns on investment in large-scale field developments in the North Sea than in any other comparable basin.

READ MORE: UK North Sea offers world's best oil and gas conditions, say experts

Thanks to the reliefs available on investment in new fields and the cost of decommissioning old ones, Shell has received massive UK tax refunds in recent years.

Amid the challenges posed by the energy crisis and climate change, it may be fair to ask if the current settlement is too generous to oil and gas firms and their shareholders.