Britain’s oil and gas companies are next week expected to be offered the prospect of windfall tax relief, as prime minister Rishi Sunak looks to boost investment and improve the country’s energy security.
Ministers have been discussing with the sector a promise that the 35 per cent windfall levy on profits would cease to apply if energy prices fell below a specified “normal” long-term level.
Officials close to the negotiations say Jeremy Hunt, the chancellor, is open to the idea because it would provide tax certainty to a sector that is being encouraged to invest in new energy projects.
Sunak will set out a range of measures to boost Britain’s energy security and to help meet net zero targets next week at what Whitehall has dubbed “Green Day”.
But Sunak’s allies insist the event should be called “energy security day”, an indication that the package will also include measures to boost oil and gas production in the North Sea. “It’s not Green Day,” said one.
There is speculation in the industry that Sunak could launch the package in Aberdeen, the capital of the UK oil industry, although his allies insisted it had not been decided where the event will take place.
Oil and gas companies have long argued hydrocarbons in the North Sea have a key role in Britain’s “transition” to net zero and in providing energy security.
The industry has been pushing hard to limit the effect of the windfall tax — or energy profits levy — which was last May set at 25 per cent and contained a provision that it would switch off if energy prices dropped. Hunt announced last November that the tax would rise to 35 per cent and apply until 2028, even if energy prices fell sharply.
Wholesale oil and gas prices have declined sharply in recent months, with Brent crude trading near $75 a barrel — roughly the level it was in late 2021, prior to Russia’s invasion of Ukraine. UK natural gas prices are still elevated compared to historic norms but are less than a quarter of their peak last August.
People briefed on discussions between industry and the Treasury said Hunt was looking at a price floor so that the levy would not apply if energy prices fell below a certain level.
The Treasury declined to comment.
“We hope the government’s anticipated energy day will encourage growth, boost jobs, cut emissions and protect our energy security,” said David Whitehouse, chief executive of Offshore Energies UK, the industry body.
“We need government to confirm its continued support for UK oil and gas production and provide clarity on the price floor for the energy profits levy.” He said this would give companies confidence to invest.
The government said it would “set out further action later this month to ensure energy security in the UK”, adding that the windfall tax was already designed to encourage reinvestment of profits.
The “energy security day” is also expected to be the moment the government rewrites its net zero strategy after a judge ruled last summer — in a case brought by the Good Law Project and environmental campaigners — that the previous version was insufficiently detailed.
Several departments are refreshing their net zero policies ahead of next week. For example the transport department is poised to announce that a certain proportion of cars sold in the UK must be electric vehicles under a new initiative called the “EV mandate”.
It has also drawn up a new plan to encourage the production of sustainable aviation fuel, perhaps through a new subsidy system.
Other policy areas under review include a Green Finance Strategy which could include accelerating the issuance of green gilts and new incentives for more “green mortgages” provided to energy efficient homes.
