Question to the HM Treasury:

To ask the Chancellor of the Exchequer, if he will make an assessment of the potential impact of the Energy Profits Levy investment allowance on carbon emissions; and if he will make an assessment of the potential merits of (a) ending those tax reliefs and (b) using the funding for renewable energy projects.

This question was answered on 17th March 2023

The Energy Profits Levy was introduced in May 2022 to respond to very high prices that meant oil and gas companies are benefiting from exceptional profits. At Autumn Statement 2022, the government confirmed the rate of the levy would rise by a ten percentage points to 35%. This is on top of the 40% tax rate under the permanent regime, bringing the combined headline rate of tax for the sector to 75%, one of the highest amongst comparable North Sea regimes.

The levy was designed to strike the right balance between ensuring a fair tax return for the UK from its natural resources and continuing to encourage investment in the North Sea. The investment allowance within the Energy Profits Levy encourages the oil and gas sector to reinvest its profits to support the economy, jobs, and the UK’s energy security. It is right the government has put in place investment incentives to encourage activity to remain in the UK. Abolishing these would be counterproductive: the UK is still reliant on gas for its energy supply; reducing incentives to invest would lead to investors pulling out of the UK, damaging the economy, causing job losses and leading to future lower tax revenue.