UK Weighs Early End to Oil and Gas Windfall Tax as Reeves Seeks Investment Commitments
Treasury mulls scrapping energy-sector levy in March 2029 to unlock £40 billion investment, amid public-finance pressures
Britain’s finance minister, Rachel Reeves, is reportedly considering ending the windfall tax on the oil and gas sector a year ahead of schedule — in March 2029 rather than March 2030 — according to people familiar with her thinking.
The levy, known as the Energy Profits Levy, was introduced in 2022 following the surge in global energy prices triggered by Russia’s invasion of Ukraine.
It raised the effective tax rate on North Sea producers to approximately 78 per cent.
Industry lobbyists argue that an earlier exit could unlock some £40 billion of investment across ninety projects, restoring investor confidence in the UK’s offshore sector.
However, ministers are seeking firm commitments from companies that tax relief will lead to tangible benefits: jobs, investment and future tax revenue.
The timing comes at a difficult moment for the public finances.
The budget watchdog is expected to lower productivity forecasts by around 0.3 percentage points, potentially creating a £20 billion shortfall.
Mrs Reeves’ broader target remains balancing day-to-day spending with tax revenue by the end of the decade — a goal that would be eased by an earlier tax cut, provided it triggers growth.
A spokesperson for the chancellor’s office said only: “We do not comment on speculation around changes to tax ahead of the Budget.” The government’s next fiscal statement is due shortly, and market observers will be looking for signals about how the oil-and-gas fiscal regime may shift.
The sector is also under significant pressure.
A trade-group taskforce warned earlier this year that the current 78 per cent effective rate was “throttling investment” and could reduce long-term tax receipts for the Treasury.
Shell and other firms have publicly linked cuts and board-room decisions to the high tax burden.
If the tax is cut early, it would mark a sharp turnaround in the government’s approach to North Sea fiscal policy.
The previous rhetoric emphasised revenue capture from super-profits to fund energy-transition investment; now the priority appears shifting to securing future output, jobs and tax flows.
The choice that ministers face is whether the investment boost is sufficient to offset near-term revenue losses.
With the Budget looming, the oil-and-gas sector and investors alike will be watching closely to see if an earlier sunset of the windfall tax is announced — and whether that is paired with conditions designed to ensure that relief leads to long-term growth rather than simply lower tax receipts.
The levy, known as the Energy Profits Levy, was introduced in 2022 following the surge in global energy prices triggered by Russia’s invasion of Ukraine.
It raised the effective tax rate on North Sea producers to approximately 78 per cent.
Industry lobbyists argue that an earlier exit could unlock some £40 billion of investment across ninety projects, restoring investor confidence in the UK’s offshore sector.
However, ministers are seeking firm commitments from companies that tax relief will lead to tangible benefits: jobs, investment and future tax revenue.
The timing comes at a difficult moment for the public finances.
The budget watchdog is expected to lower productivity forecasts by around 0.3 percentage points, potentially creating a £20 billion shortfall.
Mrs Reeves’ broader target remains balancing day-to-day spending with tax revenue by the end of the decade — a goal that would be eased by an earlier tax cut, provided it triggers growth.
A spokesperson for the chancellor’s office said only: “We do not comment on speculation around changes to tax ahead of the Budget.” The government’s next fiscal statement is due shortly, and market observers will be looking for signals about how the oil-and-gas fiscal regime may shift.
The sector is also under significant pressure.
A trade-group taskforce warned earlier this year that the current 78 per cent effective rate was “throttling investment” and could reduce long-term tax receipts for the Treasury.
Shell and other firms have publicly linked cuts and board-room decisions to the high tax burden.
If the tax is cut early, it would mark a sharp turnaround in the government’s approach to North Sea fiscal policy.
The previous rhetoric emphasised revenue capture from super-profits to fund energy-transition investment; now the priority appears shifting to securing future output, jobs and tax flows.
The choice that ministers face is whether the investment boost is sufficient to offset near-term revenue losses.
With the Budget looming, the oil-and-gas sector and investors alike will be watching closely to see if an earlier sunset of the windfall tax is announced — and whether that is paired with conditions designed to ensure that relief leads to long-term growth rather than simply lower tax receipts.
