In an effort to increase North Sea investment, the levy will only be applied if prices exceed a certain threshold. Britain’s windfall tax on oil and gas producers is set to be scaled back as part of efforts to boost investment in the North Sea, according to three people briefed on the government’s plans.
Jeremy Hunt is expected to confirm in the next few days that he plans to introduce a floor on the 35 percent levy so it will only apply if oil prices and gas trade above a specific level. Treasury officials will meet with the oil and natural gas industry at a forum on Friday in Aberdeen.
After months of lobbying by the oil industry, Equinor is now deciding whether or not to proceed with its new North Sea Project, Rosebank.
The floor at which the windfall tax would be imposed is still not clear. The industry has not yet agreed on the floor price for the windfall tax.
The windfall tax will likely be controversial for campaigners against the rising cost of living , as consumers are still facing high energy bills . In recent months wholesale oil and gas prices fell sharply, but the government’s support for businesses and households was also reduced.
reported the plans to introduce a new floor ahead of the Budget in March, but the government has since shelved them.
After producers complained that the current design was discouraging investment in the basin, the government will likely argue that this move will boost energy security. Even without the windfall taxes, the drop in oil and natural gas prices as well as rising inflation rates for other inputs have made new investments less appealing.
Last year, ministers introduced an windfall tax to compensate for the estimated £29.4bn subsidy bill that was incurred by households as wholesale energy prices rose in response to Russia’s invasion.
The tax rate will rise from 40% to 65% in May, and to 75% on January 1, this year. This is set to last until 2028.
The producers have claimed that this measure has discouraged investment because it heavily taxes projects, as the prices have returned to normal levels. Banks have also pulled their financing from the industry.
UK wholesale gas prices have dropped to just over 60p per therm after peaking at £6 last summer. This is only slightly above the average long-term price for the past decade. After reaching $130 per barrel in 2013, oil prices have dropped to $75 per barrel, which is roughly where they were before Russia invaded Ukraine.
Labour has also said that it will stop issuing new drilling and gas licenses for the North Sea, if they win the expected general elections next year.
Labour announced its policy last year, and Sir Keir starmer re-announced it in January. The issue is now more prominent as Labour has a clear advantage in the polls, and has sparked a backlash among the union supporters of the party.
Gary Smith, the general secretary of GMB, urged Starmer last month to drop the plan. He warned that “stranglingthe North Sea Oil Industry” would be bad for jobs and “bad” for the environment because the UK would have to continue to import oil and gas from abroad with a greater carbon footprint.
A representative of the industry said that he anticipated that the Conservative Party would believe that the opposition to Labour’s plan had “opened the political space” for the Tories, allowing them to position themselves as strong advocates of the sector.
The government refused to comment.