UPDATED 1 Sept: The EI library in London is temporarily closed to the public, as a precautionary measure in light of the ongoing COVID-19 situation. The Knowledge Service will still be answering email queries via email , or via live chats during working hours (09:15-17:00 GMT). Our e-library is always open for members here: eLibrary , for full-text access to over 200 e-books and millions of articles. Thank you for your patience.
New Energy World magazine logo
New Energy World magazine logo
ISSN 2753-7757 (Online)

UK budget extension of windfall profits tax disappoints leading offshore energy industries body OEUK


UK Chancellor Jeremy Hunt lifting budget box in Downing Street Photo: HM Treasury
UK Chancellor Jeremy Hunt delivered a Spring Budget that some suggested was light on measures to develop the energy transition, improve energy efficiency and tackle energy poverty

Photo: HM Treasury

Among a raft of tax measures introduced by UK Chancellor Jeremy Hunt in his Spring Budget to fund a 2 pence national insurance cut for the average worker, disappointment was expressed by OEUK about a windfall tax extension, and by other parties on the lack of significant focus on measures to develop the energy transition, improve energy efficiency and tackle energy poverty. New Energy World Features Editor Brian Davis reports.

David Whitehouse, Chief Executive of Offshore Energies UK (OEUK), decried the decision to extend the windfall tax on North Sea oil and gas producers – ‘which could risk jobs, investment and economic growth’. The windfall tax, known as the Energy Profits Levy (EPL), was introduced in May 2022 following Russia’s invasion of Ukraine and imposed a 75% tax rate on the North Sea energy industry, given a significant rise in profits.


‘We are extremely disappointed that the government continues to ignore clear evidence that we need investment in offshore energy production to grow the economy and achieve net zero,’ Whitehouse commented.  


‘Thousands of jobs and billions of pounds in national revenue are at risk because of the destabilising impact of these tax decisions,’ he remarked. In fact, ‘OEUK has identified £200bn of investment [opportunities] in oil and gas and the UK’s wider energy transition awaiting the green light, which will not happen with such globally uncompetitive taxation in place,’ he said.


Budget tax notes by the Treasury stated that: ‘As the oil and gas sector’s windfall profits from higher profits and higher prices are expected to last longer, the [so called] “sunset clause” on the EPL will be extended by a year to March 2029, raising £1.5bn while encouraging investment in the UK’s energy security by promising to legislate for its abolition should prices fall to their historic norm sooner than expected.’


On a more positive note, the UK Chancellor’s extension of the fuel duty freeze and the 5 p/l cut was welcomed by the Petrol Retailers Association (PRA). ‘This move is poised to ease the financial burden on motorists when they refuel and is likely to be well-received.’


However, green lobbyists like Global Sustainability Director Oliver Dudock van Heel, were disappointed by the fuel duty cut. ‘On the one hand, the UK has clear and ambitious decarbonisation targets, but on the other, it won’t take measures to limit car-based emissions…. The funds gained from removing the cut fuel duty could have been used to make public transport cheaper,’ he suggested.


Nevertheless, van Heel welcomed the additional £390mn earmarked to boost growth, jobs and development in the green and clean energy sector, which he sees ‘as a first step to helping the UK regain its green growth leadership’. And crucially: ‘The £120mn to support the development of supply chains for key green technologies will boost these technologies and grow the UK’s energy security without costing the planet.’


Industry analyst James Turnbull, Head of Energy and Utilities at PA Consulting, felt the Chancellor hadn’t gone far enough in terms of green investment. Although he saw the decision to scale-up investment in vital sectors supporting the energy transition as ‘an essential step in the right direction’. But he argued that: ‘More detailed policy announcements are needed to encourage higher investment from the private sector – with lower investment risk which would see consumers benefit from lower energy costs as we look to realise our net zero ambitions.’


Specifically, the new budget demonstrated government commitment to deliver on the recently published Civil Nuclear Roadmap, confirming the UK ambition that nuclear will provide 25% of its energy by 2050 (24 GW). Indeed, Hunt announced agreement to buy the Hitachi-owned sites for new nuclear projects at Wylfa in north Wales and Oldbury-on-Severn in south-west England in a £160mn deal.  


‘The UK’s civil nuclear programme is a critical part of the government’s plan for delivering energy security and a decarbonised power sector,’ said Hunt. Great British Nuclear is currently running a competitive process for the selection of small nuclear reactors and has invited six companies – EDF, GE-Hitachi Nuclear Energy International, Holtec Britain, Nuscale Power, Rolls Royce SMR and Westinghouse Electric Company UK – to submit their initial tender responses by June this year.


Furthermore, as a levelling up investment in Teesside, where the Hartlepool nuclear licensed site exists, a ‘Green Hub’ will be created.


In addition, the Chancellor claimed that the Spring Budget provided ‘clarity and certainty’ for investment in offshore wind energy for the contract for difference (CfD) Allocation Round 6 (after the failure to attract any licence bids in AR5 due to a low electricity strike price), with a record £1bn budget set for this year’s CfD auction.


The government also emphasised its updated Energy National Policy Statement, including designating low-carbon infrastructure such as networks ‘as a critical national priority’. Later this month the Energy System Operator (ESO) is publishing the transitional Centralised Strategic Network Plan which is expected to stimulate up to £60bn additional investment in the UK’s electricity network. Establishment of a new ESO this year is considered critical for the delivery of grid reforms and better grid coordination.


Again, green lobbyists like UK100 Chief Executive Christopher Hammond decried the lack of focus in the budget on energy efficiency and reduction of fuel poverty, ‘as the government is unlikely to be able to subsidise everyone’s energy bills again under current fiscal rules’. Hammond insisted that ‘national politicians can’t kick fuel poverty into the long grass in favour of short-term electioneering’.  


Meanwhile, Will Walker, UK Policy Lead of climate solutions charity Ashden, also criticised the Chancellor’s Spring Budget, which he said ‘predictably majored on pre-election giveaways’. He continued: ‘Apart from some welcome extensions to existing government schemes, such as a relatively small funding boost to the Green Industries Growth Accelerator, this was another barren budget for net zero.’