INCREASING TAXES ON NORTH SEA OIL AND GAS companies would triple the amount of money the government can raise from fossil fuel companies making excessive profits, which could be used to ease the burden for families this winter.
As energy bills continue to rise, the government could increase the Energy Profits Levy by 20 percentage points to raise £9.3 billion more than the £5 billion it is currently expected to generate in the next 12 months, according to new research published by the New Economics Foundation (NEF).
The NEF modelled the revenue effects of raising the government’s Energy Profits Levy of 25 per cent by 20 percentage points up to 45 per cent and removing loopholes such as reliefs on investment in fossil fuels. These tax reliefs are already bringing in climate thrashing investment in new oil and gas fields that would otherwise not have been feasible.
After including the 40 per cent base rate of tax on oil and gas profits, the new headline rate of tax on oil and gas profits would be 85 per cent. The NEF modelling shows that given further expected price increases, this is the rate of tax required to maintain oil and gas profits at historically more normal levels of around £5 billion a year.
The analysis follows the news of record-breaking profits by oil and gas majors like BP and Shell which together have reported profits of over £16 billion in the last three months, with only a third of these captured through the meagre energy profits levy. These record profits come at the same time as families are bracing themselves for a predicted energy bill increase to £4,266 a year for an average household by January, which is treble last winter’s price cap of £1,277.
Beyond the increase in the headline rate, revenues would be expected to be significantly higher under the NEF plan, compared with the government’s initial estimates, because:
- The government tax relief within the new levy on investment for in fossil fuels, previously costing £1.9 billion over 12 months,.would be scrapped.
- Gas prices have risen significantly since the government made their initial estimates. There are a range of projections for expected price rises over the coming 12 months, with New Economics Foundation modelling using a central forecast.
Chaitanya Kumar, head of environment and green transition at the NEF, said: “Over the last few months, we have seen people from across society come together to demand that the government support families and households with sky-high bills rather than prioritising wealthy energy companies and their profits. The government’s Energy Profits Levy was a good start – getting vital support to those who need it most – but with prices, and therefore profits, continuing to rise, it’s time for the government to wake itself up and act once more. If we increased the levy by a further 20 percentage points, we could raise £9 billion more to make sure everyone can afford their energy bills this winter.”
* Read: Splitting the energy bill: When oil and gas companies are making more money than they ever imagined, it’s time for a higher windfall tax here.
* Source: New Economics Foundation