A 95% windfall tax on the excess profits of North Sea oil and gas companies could raise an additional £12.5 billion a year for two years, our analysis has found. This would drive overall government tax revenues from oil and gas profits up to £46bn a year, creating significant revenue to tackle the cost of living crisis.
New Prime Minister, Liz Truss MP, is poised to spend £150bn over two years freezing energy prices with speculation abounding about how the measure will be funded.
Modeling by Tax Justice UK, found that a 95% excess profits tax to be introduced instead of the government’s Energy Profits Levy, could cover a significant proportion of the cost of living package that the government is set to announce.
Tax Justice Executive Director, Robert Palmer, said: “A bigger windfall tax to clawback oil and gas excess profits is a no brainer. The Truss government should impose a 95% tax on oil and gas windfall profits. This would provide substantial funds towards any energy support package.”
“A windfall tax on oil and gas company excessive profits would ensure that these companies aren’t profiteering during these difficult times.”
The modeling is based on the £170 billion in excess profits that UK gas producers and electricity generators are predicted to make over the next two years as set out in a leaked Treasury briefing .
Notes
- This analysis uses North Sea Transition Authority and HMRC data on North Sea oil and gas revenues to average profits over ten years between 2012/13 – 2021/22, reaching an estimate of ‘normal’ average annual profits for the sector of approximately £5.1 billion.
- This is compared against Bloomberg News reporting of HMT analysis that shows £170 billion of excess profits over two years, across the UK gas and energy generating sector, where “about two fifths of the £170 billion in excess profits would be attributable to power producers.”
- We therefore assume on this basis that 60% of £170 billion is attributable to the UK oil and gas sector, equivalent to £102 billion over two years.
- Excess profits are therefore considered as £51 billion per annum minus ‘normal’ profits of £5.1 billion this equals £45.9 billion.
- Under the current regime, £51bn would be taxed at 65% generating £33.2bn
- If a 95% tax were applied to excess profits instead of the Energy Profits Levy, this would generate £43.6 billion each year, for two years.
- ‘Normal’ profits would be taxed under the previous regime at 40% adding £2bn, to generate total estimated government tax receipts of £45.6bn a year for two years.
- This means that our proposal would generate an additional £12.5bn in revenue a year for two years.