UK budget: North Sea windfall tax to increase with extension to March 2030

The UK Government has announced it will increase and extend windfall tax on North Sea oil and gas production.

On Wednesday, Chancellor Rachel Reeves delivered the first Labour budget in nearly 15 years, confirming the Energy Profits Levy (EPL) on oil and gas production will increase to 38% from 35%, taking the headline rate to 78%.

The EPL will also be extended to March 2030, however the 100% first-year-allowance and decarbonisation allowance will be retained.

It comes despite warnings from the industry hundreds of thousands of jobs could be lost if the windfall tax was to be hiked up.

Earlier this month, a new report from Aberdeen and Grampian Chamber of Commerce (AGCC) warned investment in the North Sea is at an all time low, calling for an end to the EPL by the end of 2025.

Responding to the Budget Statement, Russell Borthwick, Chief Executive at AGCC, said whilst the 100% first year allowances is a welcome announcement, a 'super tax' on windfall profits doesn't make sense with oil prices returning to normal levels.

Mr Borthwick said: "We welcome the commitment to 100% first year allowances for oil and gas investment, something we have campaigned for, and confirmation of the initial funding Great British Energy. These are signals that the government is listening, although the devil will be in the detail.

“However, there is no justification for a super tax on ‘windfall profits’ which no longer exist in a world where the oil price has returned to $70.

“The damage being done to the North Sea is clear for all to see. In the past week alone one major has put the for sales signs up on six fields, another has reported a 30% dip in profits and we have one operator paying millions to relinquish a licence rather than develop a loss-making field.

“Without significant long-term reform, this is not a fiscal foundation for growth; it is quicksand through which a world class industry and its supply chain could disappear.

“Therefore, we need to see a successor regime to the Energy Profits Levy accelerated to provide industry with confidence to invest in the oil and gas we need today, and the energy transition which will power our future.

“We urge the government to work with industry to design a new tax approach that secures billions of investment and tax receipts, while protecting the jobs of tens of thousands of working people.”

David Whitehouse, CEO at Offshore Energies UK also welcomed the announcements but stressed it was a 'difficult day' for the sector.

Mr Whitehouse said: "Today we heard the Chancellor recognise the role of the oil and gas sector to support high quality jobs and strengthen the UK’s energy security. We welcome that and the meetings and dialogue which have taken place between industry and the new government.

“While the government will increase and extend the Energy profits levy on oil and gas production to a headline rate of 78% and remove the associated investment allowance, the 100% first-year allowance and the decarbonisation allowance will be retained. The Chancellor also confirmed that the EPL will fall away in March 2030.

“However, with an increase in tax despite commodity prices at recent lows, there is no hiding that this is a difficult day for the sector.

“Oil and gas companies, our world class supply chain and our highly skilled people will support the energy transition. We will not be successful without them.

“It’s why there is a different path for this industry which can deliver the energy future we all agree on. With industry and government working in partnership we can protect the North Sea as a national economic asset. It can and should serve as an engine to realise UK economic growth and climate goals.

“We welcome that the government will consult in early 2025 on how the oil and gas tax regime can encourage investment and respond to changes in the oil price. We also note the consultation on end use emissions for oil and gas projects.

“That’s why we are calling for a homegrown energy transition - making the most of our whole homegrown sector – from oil, gas, wind, hydrogen to carbon capture projects with fair and competitive stable policies that keep jobs, skills and capital in the UK.”