Energy crisis: Government to suspend windfall tax on oil and gas profits if prices drop

The government said the 75% tax was deterring investment - but would stay in place until prices fell for a ‘sustained period’
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A windfall tax on oil and gas companies will be suspended if fossil fuel prices keep falling, the government has announced.

The tax was introduced last year to make sure oil and gas firms weren’t profiting unfairly from soaring energy costs - triggered in part by Russia’s invasion of Ukraine - but the Treasury said it was now hurting investment.

What is the windfall tax?

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Energy prices rose sharply when Vladimir Putin began his war in Ukraine last spring. To ensure companies were paying what they owed, the government introduced a 75% tax on profits generated by North Sea oil and gas producers.

Since then, prices have dropped back considerably. Ministers say the tax has so far generated £2.8 billion - helping to subsidise schemes like the energy price guarantee, which limited the amount households could be charged per unit of gas or electricity. The scheme runs until the end of the month.

Records show that representatives from Equinor – which holds the license for the massive Rosebank oil field off Shetland – had 13 meetings with MSPs since the start of 2021, five of them with ministersRecords show that representatives from Equinor – which holds the license for the massive Rosebank oil field off Shetland – had 13 meetings with MSPs since the start of 2021, five of them with ministers
Records show that representatives from Equinor – which holds the license for the massive Rosebank oil field off Shetland – had 13 meetings with MSPs since the start of 2021, five of them with ministers

Companies facing the tax can offset some of it by investing in oil and gas extraction in the UK. But ministers said industry had warned firms were “cutting back on investment” and they needed to react.

What will change?

The Treasury says the windfall tax on oil and gas producers will remain in place until 2028 - but that if prices consistently fall to “normal levels for a sustained period” it will return to the previous, lower rate of 40%. Government officials don’t expect that to happen for another five years.

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Exchequer Secretary to the Treasury Gareth Davies said the commitment would give certainty to investors to secure the long-term future of domestic energy production - which supports around 215,000 jobs in the UK.

He added: “Never again can our energy supplies be at the whim of petrostate despots like Putin. 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”.

How has the industry reacted?

David Whitehouse from Offshore Energy UK said: “We’ve always been clear that when the windfall conditions go, the windfall tax should go”.

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“This is a step in the right direction, but many more will need to be taken to restore confidence to our sector. We will now work closely with government and lenders to understand the detail of the measure and its effectiveness at unlocking investment”.

What about opposition parties?

Labour said it would look at the details of the change, suggesting it wasn’t opposed to it outright.

A spokesperson said: “It’s right that as oil and gas producers are making historically high profits that they are asked to contribute more. Of course if the windfalls of war disappear then we’ll look at what the right long-term tax position should be for the North Sea”.

But Liberal Democrat Leader Sir Ed Davey claimed the taxes didn’t go far enough in the first place.

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He said: “The families and businesses still suffering so much from high energy bills will not forget the failure of the Conservatives to tax the windfall profits of the oil and gas companies properly. This ranks as one of Rishi Sunak’s biggest personal failures as Chancellor and Prime Minister”.

And the Green Party said it was “beyond comprehension that the government seems happy to allow these huge corporations to not only wreck the climate but to profit off the back of the cost-of-living crisis which they themselves have contributed to”.

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