Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications for this FTSE 250 stock.

| More on:
White female supervisor working at an oil rig

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Harbour Energy (LSE:HBR) is the FTSE 250’s largest oil and gas producer. And following Russia’s invasion of Ukraine, which led to a massive jump in the price of energy, the company saw a big increase in its pre-tax earnings.

However, to help fund various initiatives to cushion the impact of inflation on household finances, the UK government imposed an energy profits levy (EPL) — or windfall tax — on North Sea operators.

Energy companies already pay corporation tax of 30% while the standard rate for other companies is 25%. In addition, there’s a supplementary charge (10%) plus the EPL.

Initially, the EPL was 25%. But with effect from January 2023, it was increased to 35%. This means energy companies now face a 75% tax rate on their profits generated from the North Sea.

But the effective tax rate is even higher.

Company accounts must reflect future tax liabilities on current profits. These timing differences arise due to allowances that the government offers in return for investing in new capital equipment.

The upshot is that for the year ended 31 December 2023, Harbour Energy faced an effective rate of tax of 95%.

Profit before tax (£m)3152,462597
Taxation (£m)2142,454565
Effective tax rate (%)68`10095
Source: company accounts / FY = 31 December

A political football

In the run up to the general election, the UK’s three biggest political parties have made various pledges on how they’ll tax energy company profits during the next Parliament.

The Conservatives have said they’ll retain the existing arrangements until 2029. But they point out that the legislation has provisions in place for extra taxes to be abolished should prices fall back to “normal” levels.

Should it form the next government, the Labour party has said it will close unspecified “loopholes” associated with the EPL. The levy will also be increased by three percentage points.

If elected, the Liberal Democrats have promised to implement a “proper” windfall tax. It’s unclear what this means.


Irrespective of which party wins the election, it looks as though Harbour Energy will face a tax rate of at least 75% (possibly 78%) for the foreseeable future.

But as a shareholder in the company, I’m not planning on selling.

That’s because the company has announced plans to acquire the upstream assets of Wintershall Dea. These are all located outside the UK which means they’re not subject to the EPL. And if the deal is approved, it will transform the size and scale of Harbour Energy’s operations.

Post-completion, the company plans to increase its dividend further. That’s impressive for a stock that’s already yielding 6.6%. However, it’s important to note that payouts are never guaranteed.

But in addition to the penal rate of tax, I’m also aware of the other risks associated with holding energy stocks. Due to fluctuating commodity prices, earnings can be volatile. And oil price forecasts are notoriously unreliable.

Also, energy production can be dangerous. For example, BP is still paying compensation following the Deepwater Horizon explosion in 2010.

But whether we like it or not, demand for oil is likely to continue rising. The International Energy Agency now believes it will peak in 2029.

And by acquiring oil and gas fields in different territories, Harbour Energy will be able to compensate for the high rate of tax in the North Sea.

Therefore, irrespective of which party wins the general election, I’m going to hold on to my shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has positions in Harbour Energy Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »

Investing Articles

Unilever: a passive income stock with potential for decades of dividend growth

Stephen Wright thinks Unilever can keep reducing its share count for years to come. And this should help make it…

Read more »

Middle-aged black male working at home desk
Investing Articles

Worried about retirement? I’d buy high-yield dividend shares to build wealth

The number of pensioners enduring poverty in the UK looks set to rise. Investing in dividend shares could help Britons…

Read more »

Investing For Beginners

2 boring but beautiful FTSE 100 stocks to add to my ISA

Jon Smith runs over a couple of FTSE 100 stocks that he really likes the look of, even though they…

Read more »

Investing Articles

Here’s how I could supercharge my wealth by snapping up the best dividend stocks!

This Fool explains how dividend stocks play a crucial part of her aspirations to build wealth, and details one pick…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Revenue up 10% and accelerated growth potential for this overlooked FTSE 250 company

Today's first-quarter update from this good-value FTSE 250 company keeps me keen on the stock as recovery and growth continues.

Read more »

Investing Articles

Here’s why I’m so bullish about the BT share price now

The BT share price shot up after FY results, and a couple of months on it's still up there. Might…

Read more »