Oil and gas windfall tax to be shelved if energy prices fall significantly


Government to shelve windfall tax for oil and gas companies if energy prices fall significantly

  • Oil and gas firms currently pay a 35% ‘energy profits levy’ on North Sea profits
  • The UK government estimates the levy has raised £2.8bn since being introduced
  • Harbour Energy recently declared it would cut 350 jobs due to the windfall tax 

Oil and gas producers will not pay a windfall tax if energy prices drop to ‘historically normal levels’ for a continued period, under plans announced by the government.

HM Treasury said the measure was needed to encourage investment in the North Sea, protect jobs and improve the UK’s domestic energy supply amidst Russia’s full-scale invasion of Ukraine.

Oil and gas firms currently pay a 35 per cent ‘energy profits levy’ on the profits made from North Sea production, in addition to a 40 per cent headline rate of tax.

Taxing: Oil and gas firms currently pay a 35 per cent 'Energy Profits Levy' on the profits made from North Sea production, in addition to a 40 per cent headline rate of tax

Taxing: Oil and gas firms currently pay a 35 per cent ‘Energy Profits Levy’ on the profits made from North Sea production, in addition to a 40 per cent headline rate of tax

The UK government estimates the levy has raised £2.8billion since being introduced by then-Chancellor of the Exchequer Rishi Sunak in May 2022 and is anticipated to raise about £26billion by March 2028.

Money from the levy has gone towards supporting households and businesses with their energy bills, which have skyrocketed in the past 18 months due to the conflict in Ukraine and the loosening of Covid-related restrictions.

But energy companies have complained that the levy has forced them to cut investment plans, even though they can save 91p in tax for every £1 they invest in new oil and gas extraction.

Harbour Energy recently declared it would cut 350 jobs and shift expenditure away from the UK after it stopped bidding for new North Sea projects and saw annual profits virtually wiped out by the windfall tax.

The government has now said petroleum firms will not pay the EPL if oil prices stay below $71.40 per barrel and gas remains under 54 pence per therm for two successive quarters.

On Friday, a barrel of Brent Crude was trading at $76.13 a barrel, while natural gas stood at 68.4 pence per therm.

Gareth Davies MP, exchequer secretary to the Treasury, said: ‘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.’

Shell

BP

Earnings: Many campaigners and politicians believe reducing the windfall tax is wrong, given that some oil and gas companies such as Shell and BP are making record profits

A ban on new North Sea oil and gas investment would lead to the UK’s dependence on imports rising from 50 per cent to 80 per cent by 2033, according to figures from the government and the North Sea Transition Authority.

The Treasury’s decision comes as Norwegian energy giant Equinor prepares to decide on the future of Rosebank, a £4.5billion project that could produce up to 300 million barrels of oil.

But environmental groups are vehemently opposed to the site’s development, with the organisation Uplift claiming it would emit over 200 million tonnes of carbon dioxide.

Many campaigners and politicians also believe reducing the windfall tax is wrong, given that some oil and gas companies are making record profits and spending huge sums on share buybacks and dividends.

BP made £23billion in underlying earnings and bought about $11.7billion of its own shares last year, more than double the previous year’s amount.

Just as controversial with environmental activists, the firm announced a scaling back of its planned carbon emissions reduction target.

Meanwhile, Shell revealed a record £32.2billion annual profit for 2022, £1.4billion higher than analysts had predicted, mainly due to soaring gas prices.

Alice Harrison, fossil fuels campaign leader at Global Witness, said: ‘Now is not the time to be asking those companies to pay even less tax. This is a government on the side of polluters, not the people.’

Harrison further accused the government of having ‘learned nothing from the energy crisis and is intent on returning to business as usual as quickly as possible.

She added: ‘The fossil fuel industry has used its enormous influence and power to fight the windfall tax, and it is an affront to humanity that it appears to have won.’ 





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