A windfall tax on energy corporations in the style of Norway could earn £33.3 billion more by 2027, closing a hole in the government’s finances and helping to keep energy costs low, according to research.
As a consequence of the skyrocketing profits that fossil fuel firms have been recording as a result of the crisis in Ukraine, the incoming chancellor, Jeremy Hunt, is considering extending the “sunset clause” in the energy earnings levy by two years beyond 2025.
Green Alliance, an environmental think group, argues he might go one step further and raise the charge by 13 percentage points, to 78%, matching Norway’s tax rate on North Sea oil and gas corporations. Currently, the UK government has added a 25% charge to the current 40% tax, bringing the total tax to 65%.
Increasing it further to match Norway would generate an extra £6.6 billion each year until 2027, the think tank claims, accounting for 17% of the £40 billion-a-year budget gap, or the equivalent of yearly spending on policing and fire services.
“Why should oil and gas corporations pay less to explore in British seas than they do across the North Sea in Norway?” asked Heather Plumpton, a policy analyst at Green Alliance. This is a matter of whether the government values the profit margins of fossil fuel firms more than balancing the finances. “It’s not acceptable that the fossil fuel business isn’t paying a reasonable amount of tax when the public finances are in shambles and people are struggling with the cost of living.”
The thinking group also advocates for the elimination of the investment allowance for new oil and gas investments. This is a tax break that allows firms to save 91p on every £1 invested, which many claims negate the benefits of the windfall tax.
“The new government cannot look the UK public in the eye and tell them to accept failing public services or effective wage cuts while enabling oil and gas firms to pocket enormous profits from the North Sea,” Tessa Khan, founder of the environmental organization Uplift, said. If the administration is seeking easy money, imposing taxes on corporations that benefitted from the Ukraine conflict is as apparent as it gets.
“While the government is correct in assisting with energy bills, most of the public money will wind up in the bank accounts of oil and gas firms.” It is the government’s responsibility to reclaim some of it.
“Worse, this administration is aggressively subsidizing new drilling that will do little to cut prices while essentially preventing cheaper sources of renewable energy, such as onshore wind and solar, that would permanently lower our costs.”
Hunt has stated that “nothing is off the table” in terms of windfall taxes.
The 28 top oil and gas corporations achieved a collective profit of $100 billion (£86 billion) in the first three months of 2022. BP achieved its largest quarterly profit in 14 years in the second quarter of 2022, doubling usual profits to $8.5 billion over three months. During the same period, Shell also achieved a record profit of $11.5 billion.