The government is set to end the windfall tax on oil and gas giants in 2030 and replace it with a “new regime”, the government has confirmed, risking a political backlash on the left and among environmentalists.
The windfall tax, first proposed by Labour in 2022 and implemented by the Conservative government to help tackle the cost of living crisis, was included as part of Labour’s first steps for change in the party’s election manifesto to help fund Great British Energy. It is not clear what the decision means for GB Energy’s funding.
However, the government has said it was “offering the oil and gas industry long-term certainty on the fiscal landscape by ending the Energy Profits Levy”.
The levy on the “extraordinary” profits the oil and gas sector is making was set at 25% at first, before rising to 35%.
It was then extended by Jeremy Hunt in November 2023, taking the overall tax burden faced by UK oil and gas producers to about 75%. It was extended again from 2028 until 2029 last March shortly before the election.
The announcement from the government also signals that a replacement scheme may follow in its footsteps, with a consultation with industry taking place on what shape that may take “to respond to any future shocks in oil and gas prices”.
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The government said it was “committed to working with industry, communities, trade unions and wider organisations to develop a plan that will ensure a phased transition for the North Sea – creating tens of thousands more jobs in offshore renewables estimated by 2030.”
New proposals to replace the windfall tax could see firms continue to pay the permanent tax regime of 40%, with a mechanism for the rate to rise if wholesale gas prices increase.
A press release also states that the government “recognises the call of workers and trade unions for a coordinated plan to protect good jobs, pay terms and conditions in the North Sea, and commits to shaping this plan with workers and unions”.
A consultation also includes “delivering the government’s commitment not to issue new licences to explore new oil and gas fields in the UK”.
In outlining its commitment to setting up GB Energy, Labour’s manifesto said: “To support investment in this plan, Labour will close the loopholes in the windfall tax on oil and gas companies.
“Companies have benefitted from enormous profits not because of their ingenuity or investment, but because of an energy shock which raised prices for British families.
“Labour will therefore extend the sunset clause in the Energy Profits Levy until the end of the next parliament. We will also increase the rate of the levy by three percentage points, as well as removing the unjustifiably generous investment allowances.”
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