UK sets out changes to oil and gas windfall tax

Rate to stay at current 75 per cent for five years, but will be lowered if prices normalise

A rig in the Cromarty Firth, Invergordon. The UK government will cut the windfall tax on North Sea oil companies if prices normalise for a sustained period. PA

The UK government announced on Friday that the windfall tax on oil and gas companies will stay in place until 2028, but the 75 per cent level will drop to 40 per cent if “prices consistently return to normal levels for a sustained period”.

The potential lowering of the rate of Energy Profits Levy should prices stabilise at normal levels was made in response to warnings from North Sea oil and gas production companies that investment was falling as a result of the current level of the windfall tax.

The government says the Energy Profits Levy has raised about £2.8 billion ($3.51 billion) to date, helping it to pay just under half the typical household energy bill last winter.

It is predicted that the windfall tax will raise £26 billion by March 2028.

The tax rate for oil and gas companies will return to 40 per cent only if both average oil and gas prices fall to, or below, $71.40 per barrel for oil and 54p per therm for gas, for two consecutive quarters, the government said. It added that this new Energy Security Investment Mechanism is unlikely to be triggered before the Energy Profits Levy falls away in 2028.

Jobs and security

“While we stepped in to help, never again can our energy supplies be at the whim of petrostate despots like Putin,” said Gareth Davies, Exchequer Secretary to the Treasury.

“That’s why it’s so important that we secure investment in our own domestic supply, protecting the tens of thousands of British jobs that come with it.

“It would be beyond irresponsible to turn off the North Sea taps overnight. Without oil and gas from British waters, we would be forced to import even more from overseas, putting our security of supply at risk.”

The industry body Offshore Energies UK estimates that 215,000 jobs in the UK are connected with the oil and gas sector and has said that 90 per cent of North Sea producers are cutting back investment, meaning that output could fall by 80 per cent in 10 years’ time.

Norway’s state oil company, Equinor, is still considering how to proceed with its major new North Sea project, Rosebank.

Applications for licences to explore and potentially develop 898 blocs in the North Sea were opened in October last year. This may lead to 100 such licences being award by the end of 2023.