A Norway-style windfall tax on energy companies could raise £33.3bn extra by 2027, plugging a hole in government finances and helping keep energy bills low, analysis has found.
The new chancellor, Jeremy Hunt, is looking at extending the “sunset clause” in the energy profits levy by two years beyond 2025 as a result of the booming profits fossil fuel companies have been recording owing to the war in Ukraine.
But the environmental thinktank Green Alliance says he could go one step further and increase the levy by 13 percentage points, to 78%, which would match Norway’s tax rate on North Sea oil and gas firms. Currently, the UK government has put an extra levy of 25% on the firms, on top of the existing 40% tax, bringing the total tax to 65%.
Increasing it further to match Norway would raise an additional £6.6bn a year until 2027, the thinktank says, making up 17% of the £40bn-a-year fiscal hole, or equivalent to annual spending on policing and fire services.
Heather Plumpton, policy analyst at Green Alliance, said: “Why should oil and gas companies pay less to drill in British waters than they do across the North Sea in Norway? This is a question of whether the government considers the profit margins of fossil fuel companies more important than balancing the books. “When there’s a black hole in the public finances and people are struggling with the cost of living, it’s not right that the fossil fuel industry isn’t paying a fair rate of tax.”
The thinktank is also calling for the investment allowance for new oil and gas investment to be scrapped. This is an allowance that allows the businesses to get a 91p tax saving for every £1 they invest, which many argue cancels out the benefits of the windfall tax.
The founder of the environment group Uplift, Tessa Khan, said: “The new government cannot look the UK public in the eye and tell them to accept worsening public services or effective pay cuts, while allowing oil and gas companies to pocket obscene profits from the North Sea. If the government is looking for low-hanging fruit, increasing tax on companies that have profited from a crisis caused by the war in Ukraine is as obvious as it gets.
“The government is right to provide support on energy bills, but a lot of this taxpayer cash will end up in the bank accounts of oil and gas companies. It’s incumbent on the government to claw some of it back.
“Worse, this government is heavily subsiding new drilling that will do nothing to lower bills, while effectively blocking cheaper sources of renewable energy, like onshore wind and solar, that will bring our bills down for ever.”
Hunt has said he was not opposed to windfall taxes “in principle” and that “nothing is off the table”.
The 28 largest oil and gas companies made $100bn (£86bn) in combined profits in the first three months of 2022 alone. In the second quarter of 2022, the UK firm BP made its biggest quarterly profit in 14 years, tripling normal profits to $8.5bn over three months. Shell also made a record profit of $11.5bn over the same period.
