UK preparing to introduce floor for oil and gas windfall tax

Three people briefed on the government’s plans said the windfall tax on British oil and gas producers will be reduced as part of a drive to invest in the North Sea.

Prime Minister Jeremy Hunt is expected to confirm plans in the coming days to introduce a “floor” to the 35% tax that will apply only if oil and gas prices trade above a certain level. there is Finance officials are scheduled to meet with the oil and gas industry at a forum in Aberdeen on Friday.

The move comes after months of lobbying from the industry as Norwegian state oil company Equinor considers whether to go ahead with a major new venture. North Sea Project, Rosebank.

It is not yet clear where the floor of the windfall tax will be set. An industry source suggested the industry wanted to set the price at about 120% of the long-term average, but said there was little consensus within the industry.

Windfall tax relief is likely to be controversial among campaigners over cost of living as consumers continue to face high utility bills. Wholesale oil and gas prices have plummeted in recent months, while government support for households and businesses has also been curtailed.

Plan to introduce floor first reported It was submitted in March ahead of the budget bill, but has since been shelved by the government.

The government is likely to argue that the measure will help improve energy security, after producers argued that the current levy design discourages investment in the basin. Falling oil and gas prices and rising inflation in other inputs have made new investment less attractive, even without a windfall tax.

Minister introduced a windfall tax North Sea oil and gas producers last year introduced legislation to offset an estimated £29.4 billion in household utility subsidies as wholesale prices soared following Russia’s invasion of Ukraine.

The measure will raise the tax rate from 40% to 65% in May and to 75% from January 1 this year, and will apply until 2028.

Producers argued the measure stifled investment by imposing heavy taxes on projects as prices returned to more normal levels and banks withdrew loans from the sector.

After peaking at over £6 per therm last summer, UK wholesale gas prices have returned to just above 60p per therm, just above their long-term average over the past decade.Crude oil prices have returned to approx. $75 per barrel After hitting $130 a barrel last year, it was about the same level as before Russia’s invasion of Ukraine.

Meanwhile, Labor has announced it will suspend new gas and drilling permits in the North Sea if it wins the general election expected next year.

Labor first announced the plan last year and the policy was re-announced by party leader Sir Keir Starmer in January. But the issue became more prominent as the party established a clear lead in the polls and the move sparked a backlash from the party’s trade union supporters.

GMB union general secretary Gary Smith last month urged Mr. Sturmer to back down on the plan, warning: “strangle” The North Sea oil industry will have a “negative impact on jobs” and will have a “negative impact on the environment” as the UK will have to import more carbon-intensive gas and oil from abroad.

One industry insider said the backlash against the Labor plan “has opened up the political space” for the Conservatives to reconsider the windfall tax, allowing them to establish themselves as strong supporters of the industry. said he expected to.

The government declined to comment.