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GlobalData: oil and gas windfall tax extended in UK Spring Budget

Published by , Editorial Assistant
World Pipelines,

In his Spring Budget, presented to Parliament on Wednesday 6 March, 2024, UK Chancellor of the Exchequer Jeremy Hunt announced an extension to the windfall tax on oil and gas profits and the freezing of a 5p cut on fuel duty, according to GlobalData.

The 35% Energy Profits Levy, announced in May 2022 in response to record profits for the oil and gas industry and soaring bills for consumers, will now run for an extra year, ending in 2029 rather than March 2028.

The Office for Budget Responsibility said in its fiscal outlook update for November last year that total taxes from the oil and gas sector are to increase by £6.1 billion (US$7.78 billion) between 2023 and 2024, falling steadily to £2.1 billion by 2029 as production declines.

Delivering his budget, 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 £1.5 billion."

He added that "generous investment allowances" would be retained to encourage companies to continue investing.

Hunt expects to use the funds raised from this and other duty increases announced in the budget to pay for a 2p reduction in the country’s National Insurance tax, which follows a previous 2p cut announced last autumn.

Hunt also announced an extension to the 5p cut to fuel duty, which was originally announced by Prime Minister Rishi Sunak in 2022 and due to expire this month.

The move will cost the government an estimated £5 billion, as the Conservative Party looks to keep drivers on-side for the upcoming general election, expected to be held this autumn. Currently, the Conservatives are lagging in the polls, with support for the party falling to its lowest level in more than four decades.

Oil and gas producers operating in the UK North Sea have criticised the windfall tax, saying it disproportionality targets smaller companies. Oil majors, such as the UK’s Shell and bp, produce much of their earnings from operations outside UK territory and are therefore not subject to any British tax.

Scottish Conservative Leader Douglas Ross has also argued against any extension to the windfall tax, stating that the move would not provide the certainty oil and gas companies need to continue investment. This comes despite strong earnings from the industry last year and a commitment from the government in July to continue granting oil and gas licences in the North Sea, a move that sparked backlash from climate groups.

Global Justice Now, a UK organisation that campaigns on issues relating to social justice in the Global South, criticised Hunt’s announcement. Izzie McIntosh, climate Campaign Manager at Global Justice Now, said: “Once again this government has failed to close the loopholes in its windfall tax, which hand billions back to the oil and gas industry to keep on drilling.

“Instead of piecemeal climate policies here and there, we need a government truly ready to address the climate crisis at its root. That means introducing a permanent polluters’ tax to fund a fair transition to clean energy and phasing out fossil fuel production altogether – these are measures which could truly ensure economic and environmental security in the long term.”

Daniel Burton, CEO of energy technology provider Wondrwall, told Offshore Technology that the budget is a “step in the right direction” but added the sector needs more reassurance regarding the connecting of renewables to the grid. “For now, more cash for green energy production, noting the £120 million of extra funding to the Green Industries Growth Accelerator to build supply chains for new technology such as offshore wind and carbon capture, is a good thing,” he said.

“Though Hunt gave a nod to a faster connections process by January 2025, an upcoming general election and lack of needed detail could potentially unplug efforts rapidly.”

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