Windfall tax consultation has been launched by the UK government on plans to replace the profits of energy companies from the North Sea when the windfall tax comes to an end in 2030. The windfall tax, first proposed by Labour in 2022 and implemented by the Conservative government to help tackle the cost of living crisis, was included as part of Labour’s first steps for change in the party’s election manifesto to help fund Great British Energy. It is not clear what the decision means for GB Energy’s funding.
However, the government has said it was “offering the oil and gas industry long-term certainty on the fiscal landscape by ending the Energy Profits Levy”. The levy on the “extraordinary” profits the oil and gas sector is making was set at 25% at first, before rising to 35%. It was then extended by Jeremy Hunt in November 2023, taking the overall tax burden faced by UK oil and gas producers to about 75%. It was extended again from 2028 until 2029 last March shortly before the election.
The announcement from the government also signals that a replacement scheme may follow in its footsteps, with a consultation with industry taking place on what shape that may take “to respond to any future shocks in oil and gas prices”. The Energy Secretary, Ed Miliband, said: “The North Sea will be at the heart of Britain’s energy future. For decades, its workers, businesses and communities have helped power our country and our world. Oil and gas production will continue to play an important role and, as the world embraces the drive to clean energy, the North Sea can power our plan for change and clean energy future in the decades ahead.”
New proposals to replace the windfall tax could see firms continue to pay the permanent tax regime of 40%, with a mechanism for the rate to rise if wholesale gas prices increase.
A government press release also “recognises the call of workers and trade unions for a coordinated plan to protect good jobs, pay terms and conditions in the North Sea, and commits to shaping this plan with workers and unions”. The windfall tax consultation also includes “delivering the government’s commitment not to issue new licences to explore new oil and gas fields in the UK”.
Read more on this story here.