Britain is tightening another screw on its oil and gas sector, this time by closing a tax structure that officials say allowed multinational energy firms to sharply reduce taxes on profits generated from UK operations.
Finance Minister Rachel Reeves said Thursday the government will end a practice allowing losses from foreign branches to offset taxable UK profits, a move she said was being used by some oil and gas companies to pay “little or no corporation tax” on British energy trading income.
“Today we’re putting an end to that practice,” Reeves told Parliament.
The government expects the measure to generate hundreds of millions of pounds annually and plans to use the proceeds to fund a grab bag of consumer-friendly initiatives, including free bus fares for children, food tariff reductions, and tax breaks for family attractions.
Theoretically, the policy sounds straightforward: close a loophole, collect additional revenue.
Unfortunately, we are in the middle of an actual energy crisis.
Britain already imposes one of the heaviest tax burdens on oil and gas producers in the developed world. Under current rules, North Sea operators can face total tax rates as high as 78% when prices exceed government thresholds.
And the latest tax move arrives as London continues pushing a broader transition agenda that has become increasingly uncomfortable to reconcile with current market realities.
Just last week, the UK moved to permanently ban new North Sea oil and gas exploration licenses. At nearly the same time, the government softened parts of its Russian fuel restrictions amid concerns over diesel and jet fuel supply.
Oil markets, meanwhile, have been busy doing their own thing.
The Iran war and disruptions tied to the Strait of Hormuz have driven fuel costs sharply higher, pushing Britain and much of Europe back into an awkward conversation about energy security.
That leaves Britain attempting a delicate balancing act: discourage domestic fossil fuel development while simultaneously worrying about fuel shortages and rising consumer costs.
By Julianne Geiger for Oilprice.com
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