The Treasury introduced significant changes to the windfall tax on oil and gas firms profits after what a civil servant described as “intense lobbying” by the fossil fuel industry, according to official documents released to the investigative Substack Democracy for Sale and reported first here at The Lead.
The "energy profits levy" was introduced last July, after prices reached historic highs following the Ukraine war, leading to record profits for oil and gas giants such as Shell and BP.
The levy is due to end in 2028. But in June, chancellor Jeremy Hunt announced that it will close sooner if energy falls below a set price—potentially saving oil and gas companies enormous sums.
The decision to introduce this “price floor” in Britain’s windfall tax came after extensive lobbying by the oil and gas industry and its trade body Offshore Energies UK (OEUK), according to documents released under Freedom of Information legislation.
In March, OEUK, whose members include BP, Shell, ExxonMobil and TotalEnergies, had a call ahead of the spring budget with then-Exchequer Secretary to the Treasury James Cartlidge.
In a briefing note prepared for the minister ahead of the call, OEUK was described as “the most vocal lobbyist” for a price floor.
A Treasury civil servant added that the oil and gas industry “has been lobbying intensely for a price floor in the EPL [energy profits levy].”
During the meeting, OEUK’s chief executive David Whitehouse told Cartlidge that the sector was “extremely disappointed that oil and gas did not get a mention in the budget” and called for more engagement and “a public signal” to “shore up confidence."
The industry’s disappointment did not last long. By the end of March, the oil and gas trade press were reporting that the industry “expect the government to ease the burden of windfall taxes imposed on fossil fuel profits last year.”
On June 6, OEUK had another ministerial meeting, this time with Scotland minister John Lamont, “to discuss the energy profits levy” on North Sea oil and gas, according to transparency disclosures released recently.
On June 9, the Treasury announced that if wholesale energy market prices fall back to normal levels the levy would end. Government said independent price forecasts suggested the price floor mechanism was unlikely to be triggered before the windfall tax’s planned end date in March 2028.
Caroline Lucas said that “ministers have serious questions to answer about the extent and influence” of fossil fuel lobbyists.
“The oil and gas lobby’s privileged and seemingly unparalleled access to ministers needs to be exposed as the scandal that it is,” the Green MP said. “It’s time to kick fossil fuels out of politics once and for all.”
91p return for every pound
The oil and gas sector has long enjoyed privileged access to the upper reaches of the British government.
In the year following the invasion of Ukraine in February 2022, OEUK and its operator member companies—such as BP, ExxonMobil and Shell—met UK government ministers more than 210 times, according to research by the Corporate Europe Observatory.
After significant public pressure, the government did introduce a windfall tax last year. However, the levy came with a generous tax relief for investments in new oil and gas fields—a move that was lobbied for by the All-Party Parliamentary Group of the British Offshore Oil and Gas Industry, a cross-party group of MPs whose secretariat is provided by Offshore Energies UK.
As a consequence, for every British pound invested in the North Sea by fossil fuel firms, just over 91% is returned in tax relief. Norwegian energy giant Equinor got £3.75 billion back from the controversial Rosebank development in the North Sea.
A UN report this week, which warned that energy companies are “doubling down” on oil and gas, said that the UK’s 40% permanent tax rate on fossil fuels is “one of the lowest oil and gas tax and royalty regimes in the world.”
On Tuesday, prime minister Rishi Sunak used the King’s Speech to confirm plans to introduce legislation that will allow oil and gas companies to bid for new licences to drill for fossil fuels each year.
A spokeswoman for Offshore Energies UK told The Lead that “industry representatives meet regularly with politicians to ensure the smooth running of the sector and the best possible management of the transition to low carbon energies in the future.”
“We will always champion our industry to all parliamentarians on a cross-party basis and do so in an open and transparent manner."
A Treasury spokesperson said that the government has a responsibility to provide certainty for investors to protect the UK's domestic energy supply.
Tessa Khan, executive director of climate action campaigners Uplift said: “As we've seen in the King's speech, this government is so quick to act when it comes to special pleading by oil and gas industry, while shutting its eyes to the needs of ordinary people who are facing another winter of unaffordable energy bills.”
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