Britain’s Chancellor Rachel Reeves has raised the Energy Profits Levy on North Sea oil and gas producers to 38% in her first budget for the Labor government.
The 3% increase on the existing 35% levy, which was imposed by the previous Conservative administration, takes the headline tax rate on the industry to 78%.
In addition, Reeves has removed the levy's 29% investment allowance under which E&P companies could offset tax from re-invested capital.
However, both the 100% first-year capital allowance and the decarbonization allowance will remain in place. And Reeves confirmed that the Energy Profits Levy should “fall away” in March 2030.
At the same time, she reiterated the government’s support for UK carbon capture and storage and hydrogen projects.
“With an increase in tax despite commodity prices at recent lows, there is no hiding that this is a difficult day for the sector," said David Whitehouse, CEO of industry association Offshore Energies UK. “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…
“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 home-grown energy transition—making the most of our whole home-grown 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.”
George Morrison, CEO of Aquaterra Energy added, "The government’s commitment to 11 new green hydrogen projects and £22 billion [$28.58 billion) for carbon capture and storage is a promising nod toward the future of the UK energy sector. Yet, with ongoing challenges from the effects of the profits levy, potential alone won’t cut it.
“The North Sea’s future relies on swift regulatory action, strategic infrastructure investment and robust supply chain support, alongside targeted measures to advance electrolyzer technology for green hydrogen at scale. Only with these in place can we bring these projects from paper to powerhouse."
Offshore wind sector
In the budget, Reeves confirmed £134 million ($145.5 million) of funding to redevelop ports as bases for floating offshore wind and said 11 new green hydrogen projects will go ahead.
RenewableUK CEO Dan McGrail said, “We welcome the chancellor’s commitment to use the National Wealth Fund to transform ports around the UK into new industrial hubs for offshore wind manufacturing and assembly, building and supplying projects here as well as exporting our cutting-edge technology worldwide. We know that, with the right grants and incentives from the National Wealth Fund, the UK has the potential to secure hundreds of millions of pounds of investment in offshore wind alone, building the supply chain and creating jobs. Given fierce international competition, the sooner that process starts, the better.
“Ultimately, with coordinated support between government and industry, we believe the UK could triple the size of its offshore wind supply chain, boosting the economy by £25 billion [$27.1 billion] over the next decade.
“We’re also pleased to see support for 11 new green hydrogen projects, which will provide vital flexibility and greater stability for our future energy system, as green hydrogen can be stored and used whenever it’s needed."
