U.K. Jacks Up Windfall Tax to 35% on Oil & Gas Companies

The U.K. has increased its windfall tax on oil and gas companies in a move that will raise an estimated ￡14 billion (US$16.5 billion) next year and more than ￡55 billion (US$65 billion) from 2023 to 2028.

The Energy Profits Levy will increase the 25% rate introduced in May to 35% from January 1 next year and will now remain in place until the end of March 2028, instead of 2025. The move brings the total tax burden on oil and gas firms to 75%, according to the U.K. Treasury. Announced by U.K. Finance Minister Jeremy Hunt, the measure will be accompanied by a "temporary" 45% windfall tax on the excess profits of electricity generators for the first time over the same period. Since Russia's invasion of Ukraine in February, gas supplies to Europe have been hit sharply, while prices have risen by hundreds of percent throughout the year. This has resulted in record profits for many leading oil and gas firms, and also electricity generators where electricity prices are tied to wholesale gas prices. For additional information, see May 27, 2022, article--U.K. Imposes 25% Windfall Tax on Oil & Gas Companies .

Oil and gas company?BP plc ?(NYSE:BP ) (London, England) earned ￡7.1 billion (US$8.2 billion) in profits worldwide between July and September--more than double its profit for the same period in 2021.?Shell plc ?(NYSE:SHEL ) (London, England) also more than doubled its profits for the same three-month period to ￡8.2 billion (US$9.7 billion).

"Demand for energy post COVID-19 and the invasion of Ukraine by Russia have meant oil and gas prices have risen substantially since last year with gas prices in 2022 reaching unprecedented levels," the government stated. "Prices, and in turn profits, are expected to remain high among oil and gas producers for the foreseeable future. From the start of 2023, the Energy Profits Levy will increase by 10% points to 35%. We have also confirmed that the levy will remain in place until the end of March 2028. This will bring the headline tax rate for the sector to 75%, which is comparable to other North Sea tax regimes, including Norway."

It added: "A new and temporary tax of 45% will be introduced on the extraordinary profits of electricity generators who, like the oil and gas sector, have seen profits increase well above their company predictions. The structure of the electricity market means the price of electricity is tied to the wholesale gas price and, as a result, many electricity generators are also seeing extraordinary returns by the unprecedented increase in gas prices. To ensure that electricity generators also pay their fair share towards strengthening public finances and supporting households and businesses get through the current cost of living challenges, we are introducing a new, temporary 45% levy on these extraordinary profits, defined as electricity sold above ￡75 (US$88.6) per megawatt hour (MWh)."

Offshore Energies UK (OEUK), which represents the offshore oil, gas and renewables sectors, warned that the new levy threatens long-term investment and consumers' energy security. Deirdre Michie, OEUK's chief executive officer, agreed that consumers are suffering and it was right for all sectors to play their part, but added: "These tax changes will undermine one of the U.K.'s most important industries. The U.K. offshore industry generates jobs for 200,000 people plus billions of pounds in taxes. The oil and gas it produces buffers the nation against global shortages. These changes put all those benefits at risk. We remain proud to pay our taxes, but this latest increase means U.K. offshore operators will be paying a total rate of 75%. This rate is so high that it threatens to drive investment out of the U.K. altogether. The extension to 2028 takes no account of the likelihood of prices falling in that time. It's also worrying that we are increasing taxes on low-carbon electricity generation like offshore wind."

Contact us ?for more information.

If you want more news,?click here .