The UK Treasury has announced the suspension of the country’s windfall tax if energy prices drop to a certain level.
The windfall tax, or Energy Profit Levy, is due to stay in place until March 2028. In the case that oil prices fall to, or below, $71.40 (£56.91) per barrel for a period of three consecutive months, suppliers will only pay 40% in tax. For gas suppliers, the rate is set at £0.54 per therm.
The tax was introduced in May 2022 to help UK households with energy bills amid soaring profits for the oil and gas industry. The levy has so far raised £2.8bn and is expected to raise £26bn by March 2028.
The government has announced the introduction of the Energy Security Investment Mechanism, which it says will enable the oil and gas industry to gain capital and invest in new projects.
“While we stepped into help, never again can our energy supplies be at the whim of petrostate despots like Putin,” said Gareth Davis, Exchequer Secretary to the Treasury, in a statement. “That’s why it’s so important that we secure investment in our domestic supply, protecting the tens of thousands of British jobs that come with it.
“It would be beyond irresponsible to turn off the North Sea taps overnight. Without oil and gas from British waters, we would be forced to import even more from overseas, putting our security of supply at risk,” he added.
Davis’s comments come shortly after the UK Opposition Leader Kier Starmer announced plans to block all North Sea oil and gas drilling if elected as the country’s prime minister in 2025. The UK’s Senior Climate Advisor Lord Deben has also backed the proposal.
The UK Government states that it is taking “concrete steps” to ensure domestic energy supply and reduce reliance on imported fuel. Rising household bills in the UK were largely the result of the Russian invasion of Ukraine in February 2022 and limits to gas supply.
Energy security has become a key tenant of the UK’s energy policy following the introduction of its Powering Up Britain policy in March this year.