UK Introduces New 25% Tax on Oil-And-Gas Companies -- Update
By Jaime Llinares Taboada
The U.K. treasury chief on Thursday outlined a new 25% tax on
the profits of oil-and-gas companies, raising the overall fiscal
burden on the industry to 65%.
Rishi Sunak told the House of Commons this is a temporary levy
that will raise around 5 billion pounds ($6.29 billion) over the
first 12 months, and will be used to fund subsidies for households.
The new tax is effective Thursday and will be legislated for via a
The oil-and-gas industry is making extraordinary profits because
of rising commodity prices, and the tax will be phased out when
oil-and-gas prices return to historically normal levels, Mr. Sunak
The levy doesn't apply to the electricity generation sector, but
the Chancellor confirmed that the treasury will "urgently evaluate
the scale of these extraordinary profits" for power companies.
Currently, oil-and-gas producers pay a 40% headline rate tax,
consisting of a 30% Ring Fence Corporation Tax and a 10%
In addition, the Chancellor said the government is raising
investment allowances so that, for every pound invested, companies
get back a 90% tax relief.
Earlier this week, oil-and-gas industry lobby Offshore Energies
UK said a one-off windfall tax wouldn't sustainably help consumers
and would reduce investor confidence in the U.K.
Greenpeace UK said Thursday that the 25% windfall tax is too low
and a missed opportunity. "Instead of driving money into clean
energy solutions, [Mr.] Sunak has used this announcement to
encourage oil and gas company investments," Greenpeace political
campaigner Ami McCarthy said.
As the global economy recovered from the coronavirus pandemic,
prices for energy commodities have risen in the U.K. and elsewhere.
This was later exacerbated by the war in Ukraine. A barrel of oil
in Europe currently costs $114, up from $69 a year ago and $36 two
The increase in the price of natural gas has been even higher,
and this commodity is directly correlated with the wholesale
electricity market. This week British energy regulator Ofgem warned
that the annual price cap for energy bills would rise to around
GBP2,800 in October. This compares with GBP1,277 last winter and
GBP1,042 in the same 2020-21 period.
Higher energy prices have been boosting earnings for oil-and-gas
companies since last year. Shell PLC reported an adjusted profit of
$19.3 billion in 2021 and BP PLC made $12.8 billion, with both
figures being the highest since 2018. Analysts are forecasting
their profits will rise further this year.
Write to Jaime Llinares Taboada at firstname.lastname@example.org;
(END) Dow Jones Newswires
May 26, 2022 09:10 ET (13:10 GMT)
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