The government has announced it will remove the windfall tax on oil and gas companies if energy prices fall to “normal levels.”
The levy has raised around £2.8 billion to date, but the government said energy companies are cutting back on investment as a result, putting the long-term future of the UK’s domestic supply at risk.
In an announcement on Friday, the Treasury said it will slash the current 75 percent tax on North Sea oil and gas profits back to its regular 40 percent “if prices fall to historically normal levels for a sustained period.”
‘Protect Domestic Energy Supply’
Downing Street said the change was being made to “protect domestic energy supply and safeguard thousands of jobs reliant on that sector.”“Industry has warned that companies are cutting back on investment,” the government said.
“This puts the long-term future of the UK’s domestic supply at risk, meaning we would be forced to import more from abroad at a time when reliable and affordable energy is a focus for families and businesses.”
The Treasury said that the tax will not be removed before 2028 if the Office for Budget Responsibility’s energy price forecasts are accurate.
Gareth Davies, 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 will have helped save the typical household £1,500 on their energy bill by July.
“While we stepped into help, never again can our energy supplies be at the whim of petrostate despots like Putin.
‘Step In the Right Direction’
Offshore Energies UK, which represents the industry, welcomed the government’s new policy but said that it is not enough to restore confidence.“We’ve always been clear that when the windfall conditions go, the windfall tax should go,” its chief executive David Whitehouse said.
“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.”
But opposition parties have voiced opposition to the government’s move.
A Labour spokesperson said: “It’s right that as oil and gas producers are making historically high profits that they are asked to contribute more. We need a proper windfall tax on the enormous profits of oil and gas giants to help with ease the cost of living crisis.
“We will look at the detail of this change. 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.”
Liberal Democrat leader Sir Ed Davey said: “This out-of-touch government has shown yet again that it doesn’t care about people struggling just to get by, or the small businesses clinging on.
“This energy tax failure ranks as one of Rishi Sunak’s biggest personal failures as chancellor and prime minister.”
The Green Party said it is “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.”
