The winners and bruises of the extended UK windfall tax

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UK Chancellor Jeremy Hunt has extended the so-called 35% windfall tax – applicable to profits made from extracting UK oil and gas – until March 2029 in last week’s 2024 Budget. Picture used for illustrative purpose. 

This coming May will mark the second anniversary of the UK’s so-called windfall tax on oil and gas companies. And like any two-year-old, the Energy Profits Levy (EPL) – to use the official name – has been responsible for plenty of noise.

Not least now that it has been extended.

The tax was initially imposed by the UK government on energy firms when profits soared due to rising demand once Covid pandemic restrictions were lifted – followed by higher prices due to Russia’s invasion of Ukraine. Then Chancellor and now Prime Minister, Rishi Sunak, introduced a 25% EPL in May 2022.

Warning of tax implications

This came despite trade body Offshore Energies UK writing an open letter on behalf of companies in the country’s offshore energy supply chain. It urged then PM Boris Johnson not to impose a windfall tax as the industry required funds for new projects, while still recovering from pandemic economic fallout.

Ministers had used the prospect of a levy to potentially leverage energy firms into reinvesting their profits; Offshore Energies UK, in May 2022, said a levy would lead to investments being scaled back. It also said a windfall tax on energy producers would not sustainably help consumers impacted by a fuel price-aggravated cost of living crises – and could further reduce investor confidence in the UK.

The letter said: “Undermining the UK’s oil and gas fiscal regime, just as we start to turn a corner of recovery, risks sparking a chain of events which could slow down the energy transition.”

Extended until 2029

In 2023, the UK’s current finance minister, Jeremy Hunt, increased the tax amount – applicable to profits made from extracting UK oil and gas – to 35%.

And in last week’s 2024 Budget, he announced that EPL figure would remain until March 2029. Hunt said the ongoing Ukraine war would extend windfall profits for energy firms.


All that said, the government claimed the levy would lower or end if oil and gas prices declined and stabilised below a certain level for six months; in short, average oil prices must drop to $71.40 per barrel or lower, and £0.54 per therm for gas, for two consecutive quarters.

This followed warnings from North Sea oil and gas production firms that investment was falling as a result of the EPL level.

It had been predicted the windfall tax would raise £26 billion by March 2028 - funds producers might argue could have been directed for investment purposes to ensure energy security during the transition.

Fall-out and future action

So how about the effect upon an industry that employs about 200,000 in the UK and contributes £16 billion ($19.43 billion) to the economy each year, according to UK Energy Security Secretary Claire Coutinho. Offshore Energies UK was reported to have said that 90% of North Sea producers were cutting back investment, meaning that output could fall by 80% in less than 10 years.

That said, applications for licences to explore and potentially develop 898 North Sea blocks were opened in October 2022 – and 27 were awarded to entities including BP, Equinox and Shell by the North Sea Transition Authority (NSTA) in October as part of the first batch.

On launching that 33rd licensing round, Business and Energy Secretary Jacob Rees-Mogg said the war in Ukraine meant it was “now more important than ever” that the UK made the most of sovereign energy resources, “strengthening our energy security now and into the future”

He said: “Ensuring our energy independence means exploiting the full potential of our North Sea assets to boost domestic production – recognising that producing gas in the UK has a lower carbon footprint than importing from abroad.”

He also said the NSTA licensing round, which could lead to more than 100 licenses being issued, would help support highly skilled jobs across the UK’s energy industry, “boosting both our energy security and our economy.”

Where is the windfall?

In the first tax year the EPL was in place, 2022-2023, HMRC received £2.6 billion from it against a £5 billion forecast, according to BBC News.

BP said its North Sea business paid $1.5 billion (£1.2 billion) UK tax in 2023, of which $720 million was due to the levy. The year before, it paid $2.2 billion in tax for its North Sea operations, including $700 million from the EPL.

Shell said it paid £178 million in UK windfall tax for 2022 while a spokesperson revealed the company paid £1.1 billion in overall tax in the UK for 2023, of which £240m fell under the EPL.

But time and economic circumstances already seem to be catching up with the levy. Robin Mills, Chief Executive of Qamar Energy and author of The Myth of the Oil Crisis, told Energy Connects: “The ‘windfall tax’ doesn’t make much sense now that oil and gas prices are basically at historic average levels so there is no windfall.”

He continued: “The UK oil and gas sector has always suffered from fiscal instability with frequent and unpredictable changes to taxation. This won’t help the cause of maintaining self-sufficiency as long as possible, and will lead to more oil and gas imports, ultimately lower taxation revenues, and the risk of premature decommissioning of existing fields, which would then damage the aim of using them as hubs for carbon capture and other new energy systems.”

Mills added: “This comes after a period of some progress in the UK’s upstream sector, such as the 2023 Pensacola gas discovery, and the decision to go ahead with development of the Rosebank field.”

Mixed gains and goals amid price fluctuations

As it stands, companies are offered big tax benefits if they invest in oil and gas extraction – they can claim back £91.40 in tax relief for every £100 they invest.

And if they spend £100 decarbonising the way they extract oil and gas, tax benefits can run up to £109.25.

The £3.1 billion investment in Rosebank will qualify firms for up to £2.9 billion in tax relief. But Gilad Myerson from Ithaca Energy, involved in developing Rosebank, told the BBC it had “slowed our investment programme quite significantly because of the instability” caused by the EPL.

And in March 2023, Harbour Energy’s CEO, Linda Cook, reportedly said the levy had “disproportionately impacted the UK-focused independent oil and gas companies” and driven her company to reduce UK investment and staffing levels.

Back in November 2022, Shell revealed it would “evaluate each project on a case-by-case basis”, amid plans to invest up to £25bn over the next decade.

And in May 2022, BP it said that all planned UK investments – £18 billion by 2030 – would continue.

There are currently 284 oil and gas production fields in the UK North Sea - according to the NSTA - with anticipated total production of approximately 5.25 billion barrels of oil equivalent through to 2050.

What is also anticipated, perhaps, is the fiscal politics and tax apparatus around those wells producing more waves on par with that testing stretch of water in the ensuing years.


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