Jeremy Hunt has offered the North Sea oil and gas industry a ‘get-out’ clause from the windfall tax on fossil fuel profits if wholesale energy market prices fall back to normal levels.
The chancellor hopes to boost investment in the North Sea by agreeing to suspend the windfall tax on oil profits if the market price for Brent crude falls below $71.40 a barrel, and gas prices fall below 54 pence a therm, for a period of six months. The global oil price is currently about $75 a barrel, and the UK’s gas price is about 64 p/th.
The Treasury has put forward the change a little over six months after raising the energy profits levy from 25% to 35%, on top of the usual 40% rate of tax, and extending the regime by two years until 2028. It is expected to raise tens of billions of pounds to help cover the cost of the government’s support for energy bills.
The government said its levy has raised about £2.8bn to date, and it does not expect the new changes to have an impact on the tax receipts based on current forecasts for energy market prices.
The levy attracted fierce criticism from the North Sea industry, which has claimed that it could put the brakes on new investment in oil and gas projects at a time when the government hopes to increase domestic fossil fuel production.
Industry critics also said the levy had a disproportionate impact on smaller, UK-based oil and gas producers, which pay most of their tax in the UK while the oil majors including BP and Shell pay only a small part of the global tax bill to the UK.
Bumper profits at BP and Shell in recent months have prompted calls for a tougher windfall tax from Labour and campaign groups, who argue that oil and gas companies are benefiting from high energy prices at a time when many households are struggling to pay their bills.
Gareth Davies MP, the exchequer secretary to the Treasury, said: “It is right that we recover excess profits resulting from Putin’s war and use the money to help people with their energy bills. Thanks to the revenue raised from windfall taxes on energy profits, we have helped save the typical household over £1,300 on their energy bill last winter.”
Davies added that it would be “beyond irresponsible to turn off the North Sea taps overnight”, and it was important to “secure investment in our own domestic supply, protecting the tens of thousands of British jobs that come with it”.
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He said: “Without oil and gas from British waters, we would be forced to import even more from overseas, putting our security of supply at risk.”
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