Britain Reconsiders 78% North Sea Oil Tax as Investment Slows

The UK may be quietly inching toward an awkward admission: the windfall tax experiment on oil and gas has been a flop.

The Treasury is holding talks with North Sea oil and gas producers about potentially scrapping the Energy Profits Levy before its scheduled 2030 expiry, according to people familiar with the discussions. After multiple extensions and rate hikes, the levy has pushed the sector’s headline tax burden to 78% — a level producers argue borders on confiscatory, and a level critics argue borders on ridiculosity.

The EPL was introduced in 2022 after Russia’s invasion of Ukraine sent oil and gas prices soaring. Back then, it was framed as a temporary measure to capture extraordinary profits and ease pressure on households. But prices have since cooled, while the tax has lingered and grown.

Under current rules, the levy can end early if six-month average oil and gas prices fall below preset thresholds of $78.65 per barrel and 61 pence per therm for 2026–2027. Otherwise, it runs through March 2030.

There has been anticipated industry pushback. Offshore Energies UK has warned that the levy risks long-term damage to domestic production. Harbour Energy saw nearly all of its 2022 profits evaporate under the expanded tax regime, forcing it to cut jobs and shelve projects. BP and Shell have publicly reviewed UK investment plans. TotalEnergies trimmed spending.

Politically, it’s a minefield. Labour must juggle climate goals with energy security, jobs, and the rising pressure from Nigel Farage’s Reform UK, which has pledged to scrap the levy outright. Meanwhile, the Greens want it made permanent, and the Scottish National Party argues that it threatens tens of thousands of North Sea jobs.

Then comes the strategic backdrop. The UK’s grid operator and the state-owned system operator have both warned that shrinking domestic production could increase reliance on imports and leave the country more exposed to supply shocks.

For the UK Continental Shelf, some are left to wonder if the levy quietly accelerated decline in a basin already fighting gravity.

By Julianne Geiger for Oilprice.com

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