Exchequer Secretary (): The Government introduced
the Energy (Oil and Gas) Profits Levy (EPL) in May 2022 to tax
the temporary extraordinary profits of oil and gas companies, and
to help fund vital support for millions of people facing rising
bills, including the Energy Price Guarantee and additional
support for those most in need. With this levy in place, the UK
has a tax rate of 75% on profits from oil and gas production,
which is expected to raise around £50 billion between 2022/23 and
2027/28. This is one of the highest tax rates for oil and gas
production globally.
While ensuring that oil and gas companies pay their fair share,
it is also important that the Government supports jobs, supply
chains and the country’s energy security. A faster decline in
domestic production would mean importing more oil and gas - at
greater expense and potentially resulting in additional
emissions. This is why today, the Government will give operators
and lenders the confidence they need to keep investing in the
UK’s domestic energy reserves, whilst being clear that while
prices remain high, the government will continue to tax
extraordinary profits.
Through the introduction of an Energy Security Investment
Mechanism, the Government will ensure that the EPL is disapplied
if oil and gas prices fall to historically normal levels for a
sustained period. The Energy Security Investment Mechanism will
only be activated when prices consistently meet or fall below a
level typically associated with pre-crisis household energy
bills. The mechanism will use a 20-year historic average to the
end of 2022 so that it is set at $71.40 per barrel of oil and
£0.54 per therm of gas. Government will require average prices to
meet or fall below the level of both price thresholds for two
successive quarters before disapplying the EPL and will set out
further details on how this will work in due course. This
mechanism is not expected to impact receipts from the Energy
Profits Levy, based on current market forecasts.
In the 2022 Autumn Statement, the Chancellor announced a review
into the long-term fiscal regime for North Sea oil and gas to
ensure the regime delivers predictability and certainty,
supporting investment, jobs and the country’s energy security.
The Government has published Terms of Reference for this review,
setting out its scope and objectives. The review will focus on
how the fiscal regime can support the country’s energy security
while also realising our net-zero commitments in the medium and
long term.
In addition, the review will explore how the fiscal regime should
respond to any future price shocks, ensuring the country retains
a fair return in exchange for the use of its resources in a
high-price environment.
The full terms of reference can be found on the GOV.UK website:
https://www.gov.uk/government/publications/review-of-the-oil-and-gas-fiscal-regime-terms-of-reference
