The windfall tax on oil and gas companies will be extended for another year as higher oil and gas prices look likely to stick around.
Chancellor Jeremy Hunt said that the energy profits levy, which charges oil and gas companies an extra 35% tax on the money they make in the UK, would be extended until 2029.
The tax will however be abolished should energy prices fall back down to more normal levels. The extension is expected to raise around £1.5 billion, Mr Hunt said.
“We want to encourage investment in the North Sea so we will retain generous investment allowances for the sector,” Mr Hunt said.
“We will also legislate in the Finance Bill to abolish the Energy Profits Levy should market prices fall to their historic norm for a sustained period of time.
“But because the increase in energy prices caused by the Ukraine war is expected to last longer, so too will the sector’s windfall profits.
“So I will extend the sunset on the Energy Profits Levy for an additional year to 2029 raising £1.5 billion.”
Kate Mulvany, principal consultant at energy consultancy Cornwall Insight, said that the money could help deliver the UK’s decarbonisation strategy, if used right.
“Increasing the duration of the oil and gas windfall tax (Energy Profits Levy) could be seen as positive for decarbonisation if the resulting profits are used to deliver the UK’s net zero plan,” she said.
“Yet, without a solid transition strategy away from the UK’s oil and gas dependence and no assurance that tax revenues will directly support decarbonisation initiatives, the potential upheaval in investment could outweigh the benefits, posing risks to both UK energy security and employment in the energy sector.
“The stability of the UK’s regulatory environment has historically been a significant draw for investors looking to support renewable energy projects.
“Prolonging the windfall tax could weaken investor confidence, at a time when the UK is seeking record levels of investment to deliver the transition to net zero.”
