The government will discontinue taxing energy support initiatives, which raised £2.8 billion, if oil and gas prices normalise by 2028.
If prices decline, the government will terminate the windfall tax on oil and gas profits in 2028. The action is a response to fossil fuel corporations’ warnings that they will reduce investment.
The windfall tax of 75% of North Sea oil and gas production profits will continue for the next five years, but the government has announced that the tax rate for oil and gas companies will revert to 40% if prices fall to historically normal levels for “a sustained period.”
Shell and BP made unprecedented profits after the Ukraine invasion because to record pricing.
Companies do not pay the entire 75% or 40% rate because investments can offset tax liabilities.
Although the windfall tax included an investment allowance, the government stated that if it did not end when oil and gas prices declined, the long-term security of the UK’s domestic oil and gas supply would be jeopardized and the country would import more from abroad.
The government added that the windfall tax, also known as the energy profits levy, has raised approximately £2.8 billion to date and is projected to raise nearly £26 billion by March 2028.
The funding supported energy price guarantee programmes that cap home energy costs until June 30.
The International Energy Agency advised against new oil and gas projects over two years ago to limit climate impact.
However, the Treasury stated that it would be imprudent to shut down North Sea oil production overnight.
Gareth Davies, exchequer secretary to the Treasury, stated, “Without oil and gas from British waters. We would be compelled to import even more from abroad, jeopardizing our supply security.”
In recent weeks, supporting new oil and gas developments in the North Sea has been politically contentious. GMB and the prime minister have pressed Labour to prevent new fossil fuel projects in British waterways.
Labor leader Keir Starmer stated that he would collaborate with unions to “seize the opportunities” of green energy to prevent massive job losses and avoid the errors made in the 1980s that decimated coal communities.
