Drop in UK oil & gas players’ profits prompts calls for tax changes to amplify investments

Given the need to reshape the North Sea’s future through low-carbon technologies, while enabling a leg-up for investment in delivering the energy security the UK needs, Britain’s trade body for the offshore energy industry, Offshore Energies UK (OEUK), has urged the government to take action on the energy profits levy (EPL), known as the windfall tax on oil and gas profits, by next year to put all ingredients in place to secure jobs, energy security enhancement, and the build-out of the energy infrastructure for the future.

Offshore Energies UK believes the government should remove the windfall tax on oil and gas profits by 2026 and replace it with a competitive long-term mechanism in response to future price shocks to encourage investment in the country’s energy future, in the wake of the closure of the government’s consultation aimed at developing a predictable response to such price shocks.

The windfall tax, introduced in response to a spike in global energy prices in May 2022 as an additional tax on the profits made by companies producing oil and gas from the waters off the coast of Britain, is currently set at 78%. The tax remains in place despite the data from the Office of National Statistics showing a fall to negative levels in the profits of companies investing in the UK oil and gas sector.

With this in mind, OEUK claims the tax is holding back vital investment across the UK’s energy landscape. The industry, which shares the trade body’s view, is engaging constructively with the government, having called for meaningful consultation on a competitive system, which they say should be introduced in 2026, sooner than the government’s proposed timeline of 2030.

David Whitehouse, OEUK’s Chief Executive, commented: “In a country where today 75% of our energy comes from oil and gas, the solution is the responsible production of our own oil and gas from the North Sea, alongside the build out of renewable energy. It should not be a debate about one form of energy versus another – we need it all.

“We welcomed the government’s decision to launch this fiscal consultation and we’re engaging constructively in the process. The sector needs action now to secure jobs, boost energy security, and build for the future. That means a commitment from government to deliver a mechanism in 2026 that creates a predictable response to future price shocks.”

Moreover, OEUK emphasized that a pragmatic oil and gas tax regime would deliver more home-produced energy, protect jobs in the industry and across the wider economy, and strengthen the UK’s energy sovereignty, based on the UK’s increasing reliance on imported energy.

While pressing the government to act in the next Autumn Budget, OEUK is calling for a mechanism to be introduced in 2026 that gives companies certainty to invest long-term. Britain’s total energy production was seen as being at a historic low in 2024, with over 40% of the UK’s energy needs met through imports.

In light of this, OEUK is adamant that the UK could be reliant on imports for the majority of its oil and gas demand by 2030 without stimulating investment, since supportive government policy towards domestic production increases the likelihood of expansion into other energy forms, including floating offshore wind, carbon capture, and hydrogen.

“This is what is needed to unlock investment in UK energy – oil, gas, renewables, hydrogen, and carbon capture. The North Sea is a strategic national asset that has powered the UK economy and homes through for the past 50 years and it is only right that it is managed as such,” underlined Whitehouse.

Offshore Energies UK has come up with a plan calling for industry and government to develop a new national energy strategy that places home-produced energy at its core. The UK offshore energy sector supports more than 200,000 UK jobs.

Therefore, OEUK’s plan outlines that choosing to put homegrown energy at the heart of its strategies will deliver £200 billion investment this decade alone in UK offshore energies, support supply chain firms as well as operators and developers to win new work in offshore wind, carbon capture and storage, and hydrogen as well as oil and gas.

Additionally, it will add £150 billion of value to the economy and support 200,000 jobs through backing the responsible production of an additional 3 billion barrels of domestic oil and gas while meeting the UK’s climate goals and benefiting North Sea countries and wider Europe, with Britain deemed to have Europe’s largest CO2 storage capacity.

Whitehouse noted: “Decarbonisation must not mean deindustrialisation. Output in our energy intensive industries is at a 35-year low, yet our North Sea has the capability to provide all the energy it needs now and in future. In a world where we should be protecting our sovereign capabilities, that is not good enough.

“Government and industry must work together to bring down energy costs while protecting the dividend that only home-produced energy can bring in terms of taxes paid, jobs supported, and value added to the economy. By choosing homegrown energy over imports, our plan shows a path where the UK can achieve its climate goals and grow the economy.”