The British government has announced changes to its windfall tax project, suspending the 75% marginal tax rate on revenues from oil and gas projects in the North Sea.
The tax, known as the Energy Profits Levy, was initially implemented as a one-off measure to address excessive profits resulting from high global energy prices. In an effort to discourage job cuts by energy companies, the tax will be phased out, with an eventual departure date set for March 2028, as announced by HM Treasury on June 9.
The windfall tax will be suspended when prices for brent crude oil fall below a specific pricing floor. HM Treasury has set this floor at $71.40 per barrel. Currently, energy extractors face a cumulative marginal tax rate of 75%, but once oil prices drop below the set floor, the tax rate will revert to the standard 40%.
Energy prices have experienced a downward trend over the past year, following the market highs in June 2022, when crude oil reached $112 per barrel. Factors contributing to the decline include the appreciation of the US dollar, price caps imposed on Russian oil exports by Western powers, and general economic uncertainty leading up to 2024.
Chris Denning, a partner at the UK-based accountancy group MHA, supports the changes to the windfall tax and considers the introduction of a pricing floor to be a positive step. Denning believes that the windfall tax rate should be further reduced to stimulate energy production in the UK and reduce the country's reliance on foreign imports. He describes the tax revenue system as inefficient and sees the pricing floor as providing added clarity.
However, not everyone agrees with the government's decision to phase out the windfall tax. Georgia Whitaker, a spokesperson for Greenpeace UK, advocates for keeping the levy in place to address long-term issues in the country's energy system. Whitaker believes that the windfall tax is necessary to "fix Britain's broken energy system in the long term."
According to HM Treasury, the windfall tax has generated an estimated £2.8 billion ($3.5 billion) in tax revenues to date. By continuing the tax until 2028, the department aims to secure a total of £26 billion for the national budget.
By fLEXI tEAM