Many thanks for contacting me about the debate this afternoon on the Energy (Oil and Gas) Profits Levy Bill.
Oil and gas companies are currently seeing extraordinary windfall profits due to global spikes in commodity prices, driven in part by surging demand after the pandemic and Russia’s war. As a result of high energy prices, millions of households across the UK are struggling to make their incomes stretch to cover the rising cost of living. For this reason, the Government has introduced a levy which will be charged on profits of oil and gas companies at a rate of 25 per cent, on top of the existing 40 per cent headline rate of corporation tax, raising around £5 billion over the next year to support households. It will be temporary, and as the oil and gas price decreases to normal levels, the levy will be automatically phased out.
The Government is sympathetic to the argument that these profits should be taxed fairly, and should incentivise investment so critical to growing our economy. Therefore, significant investment incentives will be built into the new levy. A new Investment Allowance will double the overall investment relief for oil and gas companies, so companies will have a significant incentive to reinvest their profits. For every £1 an oil or gas company invests, they will pay 91 per cent less tax – so the more a company invests, the less tax they will pay. This relief will be available straight away, rather than waiting for profits which is normal for existing investment reliefs.
As I understand it, the Government will also examine the scale of large profits made by the electricity generation sector and consider the appropriate steps to take. Thank you again for taking the time to contact me.
11 July 2022