The UK government will impose a "temporary" 25pc tax rate on oil and gas company profits, and has sugared the pill with a new investment allowance.
The "temporary targeted energy profits levy" will be removed when and if oil and gas prices return to "historically more normal levels", the country's finance minister Rishi Sunak said today. He did not announce how the profitability metric would be calculated, nor did he offer detail on what constitutes the price level at which the levy will be removed. The government did say that the levy will raise £5bn ($6.3bn) "in its first year".
An investment allowance is built into the levy. "For every pound a company invests they will get 90pc back," Sunak said.
The government will hope this goes some way to reassuring operators in the country's upstream industry who say that higher taxes will mean less funds available to invest.
UK oil and gas output fell to 1.35mn b/d of oil equivalent (boe/d) last year, down by 17pc from 2020 because of heavy field maintenance, industry association Offshore Energy UK (OEUK) said in its recent business outlook. Investment of £4bn this year will only maintain output at 2021 levels.
Sunak said he has not yet reached a conclusion on whether to extend the levy to power generators, where the government noted "extraordinary profits are also being made due to the impact that rising gas prices have on the price paid for electricity in the UK market". He said the government is talking with the sector "to ensure the price paid for electricity is more closely linked to the cost of production".
