UPDATE: Jan 2024
In the first half of 2022, off the back on an energy crisis which sent household energy bills skyrocketing and left millions unable to heat their homes, BP, Shell, Equinor and TotalEnergies reported global pre-tax profits of over £74 billion. This led to loud calls from campaigners to better tax these profits to help support people impacted by the energy crisis and by oil and gas profiteering.
In May 2022, under increasing pressure from campaigners to fund more cost-of-living support for UK families, the UK government introduced the Energy Profits Levy. This additional tax temporarily brings the UK's headline tax rate for oil and gas companies in line with the global average (70%), increasing it from 40% to 75%. Despite the introduction of the Energy Price Levy, BP, Shell, Equinor and TotalEnergies continued to report record global profits in October. Shell even suggested it would manage to escape paying the UK windfall tax.
With prices, and in turn profits, expected to remain high among oil and gas producers for the foreseeable future, the Energy Profits Levy was extended to 2028 in the 2022 Autumn Statement. The government estimate that the levy will raise £40 billion.
But there's more work to be done! At the end of this period the UK tax rate will revert to being one of the lowest in the world. In 2019, for every barrel of oil and gas produced, the UK received $1.72 in tax while Norway’s tax system returned $21.35 per barrel.
And while the Energy Profits Levy meant that Shell paid tax in the North Sea for the first time in five years, it features an "investment allowance" that allows companies to claim tax relief on investments. This investment allowance, deemed a "huge tax subsidy" by the Institute for Fiscal Studies, means that for every £100 an oil and gas company spends on new oil and gas, they get roughly £45 off their tax bill. The UK’s independent watchdog for public finances – the Office for Budget Responsibility – have forecasted that £26.3 billion will be invested in the North Sea oil and gas over the windfall tax period (May 2022 to March 2028). This will result in £11.9 billion in tax relief under the Energy Profits Levy investment allowance.
To give a sense of the scale of this subsidy, this money could:
The total tax relief under the Energy Profits Levy investment allowance was also calculated alongside the 2023 Spring Budget (totalling £11.4 billion), and the 2022 Autumn Statement (totalling £10.6 billion) - enough to cover the additional cost of raising all staff in the NHS and education sectors wages with inflation for a year (£10.7 billion). These estimates are now outdated but have been included for reference.
(1) Based on NEFs Emergency Insulation policy paper which estimates the cost to retrofit homes in England at £1108 on average.
(2) As of August 2023, free school meals cost the government £2.53 per student in England. Accounting for the average length of an academic year (195 days), this works out at £493.35 per year per student. According to government data, of the 8.5 million pupils that attended state-funded schools in England in the academic year 2022/23, 2 million were eligible for free school meals, with an additional 1.3 million infant pupils receiving free school meals under the Universal Infant Free School Meal policy. To extend free school meals to all state-funded school children in England an additional 5.2 million free school meals would need to be funded, costing £2.6 billion a year.
(3) Based on Offshore Renewable Energy Catapult assessment of wind farm costs. Estimates of electricity generation assume a 63% load factor, in line with government reporting. This indicates that a 5GW wind farm would produce 22TWh of electricity per year. OFGEM estimate that a typical household in England, Wales and Scotland used 2.7 MWh of electricity every year.
(4) Based on government estimates of cost at £1 million per MW of solar photovoltaic installed. Reporting suggests that prices are similar for larger scale sites. A load factor of 10% is assumed as is usual in the UK. This indicates that 11.9GW of solar capacity would produce 10TWh of electricity per year. OFGEM estimate that a typical household in England, Wales and Scotland used 2.7 MWh of electricity every year.
(6) Based on Royal College of Nursing average salary from 2021 (£33,384), adjusted for pay rise introduced across NHS in 2023.
(7) Alongside the 2023 Spring Statement, the Office for Budget Responsibility estimated that £25.3 billion would be spent on new oil and gas projects between May 2022 and December 2027.
(8) Alongside the 2022 Autumn Statement, the Office for Budget Responsibility estimated that £23.6 billion would be spent on new oil and gas projects between May 2022 and December 2027.