The Chancellor has announced a one-year extension of a windfall levy on energy firms’ profits in the Spring Budget 2024 speech today.
Addressing a boisterous House of Commons today for the Spring Budget 2024, Jeremy Hunt said: “Because the increase in energy prices caused by the Ukraine war is expected to last longer, so too will the sector’s windfall profits so I will extend the sunset on the Energy Profits Levy for an additional year to 2029 raising £1.5bn.”
Hunt caveated that he will legislate in the finance bill to cancel the levy should market prices fall to their historic norm for a sustained period of time.
“Unlike the party opposite we want to encourage investment in the North Sea so we will retain generous investment allowances for the sector,” he added.
The policy was due to expire in March 2028 and in order to implement the change, a new piece of legislation will have to be introduced to parliament.
The move has faced staunch opposition from MPs in his party, including Scottish MPs based around the North Sea area, who say it will put jobs in the north east of Scotland at risk.
The Energy Profit Levy (EPL) was introduced in May 2022 after Russia’s invasion of Ukraine spiked a jump in energy prices, referred to by the Chancellor today as an “energy shock”.
Hunt increased the tax in November 2022 from its initial 25 per cent rate to 35 per cent, bringing the overall tax burden on North Sea oil and gas producers to 75 per cent, ranking it as one of the highest in the world.
The tax rate itself, as well as a 29 per cent investment allowance in the windfall tax that allows companies to offset spending, will remain unchanged.
But many figures within the UK energy industry, including smaller producers like Harbour Energy, have lumped heavy criticism on Westminster for the harsh taxing system on oil and gas firms, saying it is hampering an already-slowing industry.
Claire Angell, partner and head of energy tax at KPMG’s UK arm said the move may have “unintended consequences and a potential cost to the taxpayer in the medium to long term”.
“Postponing or shelving new development projects and the early cessation of production will reduce future tax revenues and where decommissioning starts earlier than planned the Government’s liability of up to 75 per cent of those costs will be accelerated,” she said.
Keir Starmer’s Labour has already pledged to extend the windfall tax and increase the levy to 78 per cent, measures that Offshore Energies UK (OEUK) the oil and gas trade body, say will kill 42,000 jobs and erode £26bn of economic value.
Indeed the OEUK will be holding emergency crisis talks about Labour’s plans this week.