The chancellor, Jeremy Hunt, confirmed today the end date for the windfall tax on oil and gas profits, more formally known as the energy profits levy (EPL).

In his autumn statement, Mr Hunt said the EPL would end no later than 31 March 2028.

But he said it could finish sooner if average oil and gas prices were at or below a price threshold for a specified period.

Government proposals for the oil and gas tax regime after the end of the EPL were also published today.

Windfall tax arrangements

The EPL of 25% was introduced in May 2022 by the then chancellor, now prime minister, Rishi Sunak. The current chancellor, Jeremy Hunt, increased it to 35% from January 2023.

In its first year, the tax raised £2.6bn, less than had been expected.

Environmental campaigners criticised a loophole which allowed oil and gas companies to reduce the tax if they invested.

A technical note, published today alongside the autumn statement documents, confirmed the EPL would remain for another four years and three months, unless prices fell below a threshold for two consecutive quarters.

The thresholds, set as part of the energy security investment mechanism, were $71.40/barrel of oil and £0.54/therm of gas for 2023.

For oil, the government will use the World Bank’s monthly prices for Brent crude. For gas, it would use the Independent Commodity Intelligence Services’ daily price.

The note said that from 1 April 2024 the threshold prices would be adjusted annually by the preceding December’s consumer prices index.

The EPL would cease to apply from the final day of the two consecutive quarters where prices fell below the thresholds, the note said.

Future tax treatment

The government also published principles for tax treatment for future oil and gas price shocks after the end of the EPL.

The autumn statement said this targeted support for a transition to low carbon energy by allowing tax relief for payments by oil and gas companies into decommissioning funds for assets that were repurposed for carbon capture usage and storage.

Legislation would also remove receipts from the sale of these assets from the EPL, the government said.

A review of the industry’s tax regime said:

“To ensure a fair return for the nation at times of unusually high oil and gas prices, the government will develop a new mechanism that could be used to respond to such price shocks post-2028, while also ensuring this happens in a more predictable way, in order to not deter investment. The introduction of such a mechanism should not be presupposed if prices rise. The government will need to consider a range of factors before deciding whether to introduce such a mechanism, including the economic and fiscal context of the day.”

The government said it would provide details of how price shocks would be defined before the EPL ended. It said:

“If there are unexpected price shocks in future, then to support investment, a future mechanism would be targeted at the unexpected outcomes arising from a price shock in order to not impact investment decisions which are made assuming normal circumstances. When designing a future mechanism, the government will consider suggestions, such as assessing the benefits of capturing a share of revenue resulting from high prices, rather than profits.”

The review also said the decarbonisation investment allowance would remain until the end of the EPL. Afterwards, oil and gas companies could claim tax relief of £0.4625 in the pound on investment, including decarbonisation.