London Daily

Focus on the big picture.
Friday, Aug 07, 2026

How would a UK windfall tax on oil and gas profits work?

How would a UK windfall tax on oil and gas profits work?

Analysis: Sunak hints Labour proposal ‘not off the table’ but criteria suggests very few firms would be penalised
Until this week, the government repeatedly rejected the notion of a windfall tax on oil and gas companies, which have been reaping huge profits from sky-high energy prices.

But the chancellor, Rishi Sunak, hinted at a possible U-turn on Wednesday, telling Mumsnet that such a policy was “never off the table”, and would be looked at if investment by companies in Britain’s energy security failed to materialise.

The idea is that the money raised could be spent on easing the cost of living crisis for those households most under pressure from soaring prices. So what would a windfall tax on oil and gas companies be worth to the Treasury?

Labour has repeatedly argued that a one-off, year-long windfall levy could raise £1.2bn to fund discounts on home energy bills, which are already at a record high of £1,971 for an average dual-fuel tariff, with a further eye-watering rise on the way in October.

The party has proposed levying an extra 10% on the corporation tax paid by oil companies that are active in the North Sea. This would be on top of the 40% rate they pay on their profits, already higher than the 19% headline rate of corporation tax.

This would not only affect well-known firms such as BP and Shell but also lesser-known ones such as Harbour Energy – which actually produces more oil from the North Sea than any other extractor: about 163,000 barrels a day last year.

The sector’s big firms have certainly done extremely well out of the high oil and gas prices that have sent energy bills and the cost of filling up a car to record highs. BP made a profit of £10bn last year, admitting it has “more cash than we know what to do with”. The company was a “cash machine”, its chief executive, Bernard Looney, said – around the same time as dismissing calls for a windfall tax.

Shell did even better at £15bn, after record quarterly earnings in the last three months of 2021. Both companies will report first-quarter figures next week, including any boost connected to the war in Ukraine.

On Wednesday, Sunak appeared to leave the door ajar for a levy – but one that would penalise those oil firms that fail to do their best to help the UK squeeze more drops out of the North Sea.

“What I would say is that if we don’t see that type of investment coming forward and companies are not going to make those investments in our country and energy security, then of course that’s something I would look at and nothing is ever off the table in these things,” he said.

It is not immediately clear how the government would set the criteria for judging which companies are underinvesting. In practice, forecasts of increased investment in the North Sea suggest very few firms, if any, are likely to be penalised under current circumstances.

Spending in the North Sea is forecast to hit £21bn over the next five years, according to a report published last September by the UK oil trade body Offshore Energies UK, a higher annual rate than the £3.7bn of investment in 2020.

Habour Energy, which produces a fraction of either BP or Shell’s global output, increased its spending on new and existing projects from $556m to $640m last year.

It plans to increase its spending further this year, indicating it would be unlikely to fall foul of any penalty for perceived underinvestment.

Shell is already considering a U-turn on its decision to abandon the Cambo oilfield, which lies about 75 miles north-west of the Shetland Islands.

The company said this month it planned to invest £20bn-£25bn in the UK energy system over the next decade, although 75% will be on offshore wind, hydrogen and electric vehicle infrastructure, rather than North Sea oilfields. But it too is planning more extraction.

“We plan to continue to invest in the North Sea,” BP said in its latest annual report.
Newsletter

Related Articles

0:00
0:00
Close
UK Drought Cuts Harvests and Raises Food-Security Fears
Ukraine Tells Senate Republicans Its Drone War Offers a Blueprint for America
Weight-Loss Drug Boom Tests the Limits of Prescription Advertising Rules
Trump Keeps Hegseth at Pentagon While Leaving Door Open for DeSantis
UK Clears Paramount’s Warner Bros. Discovery Deal, but US Trial Looms
UK Prosecutors Add 38 Charges Against Andrew and Tristan Tate
Taiwan’s President Joins Wartime Command Drill as China Pressure Grows
Saudi Arabia, Turkey and Pakistan Sign Mutual-Defence Pact
Trump-Era Policy Shifts Test the Boundaries of U.S. Institutions
HMRC’s 2029 Tax Shift Could Overlap Old and New Self-Assessment Bills
Thetford Disorder Prompts Expanded Police Powers Amid Asylum-Housing Protests
Cambridge Faces Calls for Independent Review of Jason Arday Appointment
Scotland’s ‘Cock of the North’ Woodland Is Being Felled After Wind Damage
Reform UK and Greens Unite Against Vast Solar Plans for Kent Marshland
New Zealand Draws Wealthy Americans With Revamped Investor Visa
Senate Panel Votes to Hold Anthony Fauci in Contempt After Fifth Amendment Testimony
Cambridge Professor Jason Arday Resigns as University Opens Inquiry Into His Credentials
Manchester Power Failure Disrupts Trains Across North West Into Friday
UK Fashion and Tourism Sectors Prepare for Strong Summer and Autumn Activity
London Residents Seek Appeal Against Approval for Chinese Super-Embassy Development
UK Environment Officials Issue Biosecurity Alert Over Rising Bluetongue Cases in Livestock
UK Charity Regulator Opens Investigations Into Donations Linked to Israeli Settlements
Gatwick Expansion and Chinese Embassy Plans Highlight Growing UK Infrastructure Disputes
UK Agriculture Authorities Warn of Rising Bluetongue Virus Cases Among Sheep Farms
UK Watchdog Finds Electronic Monitoring Failures Leaving Some Offenders Without Timely Alerts
Metropolitan Police Investigate Covent Garden Knife Attack That Injured Four Men
UK Government Confirms Severe Terror Threat Level as Prevent Programme Expands
Diageo Plans Guinness Expansion While Cutting Jobs Through Global Restructuring Programme
Bank of England Keeps UK Borrowing Costs Stable While Markets Await Future Rate Cuts
Gatwick Airport Wins Approval for Second Runway Expansion After Legal Challenges Fail
Apple Challenges UK Government Over Demand for Access to Encrypted iCloud Data
London Approves First Autonomous Taxi Licences for Wayve and Uber Passenger Trials
UK Artificial Intelligence Safety Institute Finds Advanced AI Models Showing Deceptive Behaviour in Security Tests
UK Small Boat Channel Crossings Fall Forty-Three Percent as Government Highlights France Cooperation
UK Government Plans Procurement Reforms to Boost British Jobs and Domestic Steel Supply Chains
Bank of England Holds Interest Rates at Three Point Seven Percent as Inflation Stays Above Target
EY Raises UK 2026 Growth Forecast to Zero Point Nine Percent as Energy Risks Remain a Concern
UK Artificial Intelligence Regulation and Public Infrastructure Investment Remain Key Policy Focus Areas
Kemi Badenoch Faces Criticism Over Appointment of Former Neo-Nazi Linked Figure to Advisory Role
AG Barr Reports £10 Million Sales Loss After Supply Chain and Planning Failures
UK Government Fast-Tracks Specialist Care Pathways for Motor Neurone Disease Patients
UK Government Connects More Than 60,000 Rural Homes and Businesses to Gigabit Broadband
Next Raises Full-Year Profit Forecast After Strong Summer Sales
Metropolitan Police Arrest Woman After Four Men Stabbed in Central London’s Covent Garden Area
UK Procurement Reform and Infrastructure Spending Signal New Focus on Regional Economic Growth
UK Government Expands Global Talent Visa Access for International Researchers and Innovators
NHS Launches £343 Million Expansion of Community Mental Health Centres Across England
UK Treasury Explores Higher Borrowing Capacity for Infrastructure and Housing Investment
UK Cabinet Office Reforms Procurement Rules to Direct £90 Billion of Public Spending Toward Jobs and Skills
UK Government Considers Public Inquiry Into Jeffrey Epstein’s Activities and Possible Institutional Failures
×