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UK Extends Windfall Tax on Oil Profits by a Year To 2029

The UK is extending the windfall tax on oil and gas operators in the UK North Sea by a year to March 2029, Chancellor of the Exchequer Jeremy Hunt said in the spring budget statement, in a move expected by analysts and opposed by the industry.  

The initial windfall tax, officially known as the Energy Profits Levy, was implemented in May 2022, when the government of Rishi Sunak announced a temporary 25% tax intended to represent extraordinary profits as oil and gas prices surged. In November 2022, that levy was increased by 10 percentage points to 35% beginning on January 1, 2023, and until March 2028.  

The period of the windfall tax is now extended by a year, to March 2029. 

“As the oil and gas sector’s windfall profits from higher prices are expected to last longer, the sunset clause on the Energy Profits Levy will be extended by a year to March 2029, raising £1.5 billion while encouraging investment in the UK’s energy security by promising to legislate for its abolition should market prices fall to their historic norm sooner than expected,” Hunt said in his speech to present the Spring Budget 2024.

However, “legislation in the Finance Bill will abolish the Levy if market prices fall to their historic norm sooner than expected – maintaining investment in our energy security,” the chancellor added.

With the levy at 35%, the total tax rate on the oil and gas sector has increased to a massive 75%, the highest of any UK sector.

The windfall tax on UK North Sea producers is hitting all companies, with firms already announcing lower investments and deferring drilling plans, David Whitehouse, chief executive of trade body Offshore Energies UK (OEUK), warned last year.

The windfall tax has prompted many companies operating offshore the UK to cut investments and review projects.  

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By Charles Kennedy for Oilprice.com

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