London Daily

Focus on the big picture.
Thursday, Sep 24, 2026

What's a windfall tax, does the UK already have any, and why do people think oil companies should pay more?

What's a windfall tax, does the UK already have any, and why do people think oil companies should pay more?

The news Centrica tripled its profits last year has caused anger in the wake of an investigation that revealed British Gas workers forced their way into people's homes to install prepayment meters - despite clear signs they were disabled or vulnerable.

The company that owns energy giant British Gas has reported record profits for the latest financial year, causing renewed calls for additional windfall taxes to be imposed on oil and gas firms.

Centrica reported operating profits of £3.3bn in 2022 - up from £948m in 2021. The figure also surpasses the previous record of £2.7bn in 2012.

The announcement has caused anger in the wake of a Times investigation that revealed British Gas workers forced their way into people's homes to install prepayment meters - despite clear signs they were disabled or vulnerable.

Centrica said it paid nearly £1bn in tax relating to 2022 profits. However, it also revealed it handed out bumper returns to shareholders, with plans to boost its share buyback programme by another £300m and pay out a full-year dividend of 3p a share.

BP and Shell have also both previously reported a big increase in profits as prices continue to surge around the world, exacerbated by the war in Ukraine and the COVID-19 pandemic.

It's not the first time an energy company has reported such high profit. Last year, BP made a profit of £10bn and admitted it has "more cash than we know what to do with it". The excess money was used to reward shareholders.

Meanwhile, Shell has reported record operating profits of £7.2bn in 2022.

There has been criticism of the firms for profiteering when UK households grapple with sky-high energy bills, but companies would argue until recently they were losing money following a collapse of oil prices in 2020. At one point during the pandemic, prices fell to negative figures for the first time in history.

In the space of just over a year, 31 smaller energy companies collapsed, underlying the volatility of the industry, because following the spike in wholesale prices they could not increase costs higher than the price cap (which was designed to protect consumers).

What is a windfall tax?

A windfall tax is a one-off tax imposed by a government that targets firms that have benefited from something they were not responsible for - also known as a windfall.

In the case of energy companies, they are reaping the benefits of sky-high prices in part because demand has increased as the world emerges from the pandemic and due to supply constraints following sanctions imposed on Russia after its invasion of Ukraine.

A windfall tax would affect all energy-producing firms - from BP and Shell to smaller ones, such as Harbour Energy which extracts oil from the North Sea.

With households facing a cost of living crisis borne from a perfect storm of soaring energy costs, and inflation remaining in the double digits, it is argued a windfall tax could be used to alleviate some pressures felt by the public.

Spain and Italy imposed such a tax last year.


What windfall taxes are in place already?

Labour has long campaigned for a windfall tax on energy profits, with the policy featured in its 2019 manifesto under Jeremy Corbyn. The party argued at the time it would raise £11bn and help transition towards a green economy.

But the new leadership ramped up calls in light of soaring energy prices and kept the pressure on Boris Johnson's government.

By the end of May 2021, the then-Chancellor Rishi Sunak announced a 25% "temporary Energy Profits Levy" on oil and gas producers to help support households and businesses with their energy bills.

The Electricity Generator Levy, applies a 45% tax rate to revenues generated over £75/MWh from 1 January 2023.

The government estimated its windfall taxes would raise £14bn in 2023.

The scope of that tax took the overall tax rate levelled on North Sea oil and gas producers to 65%.

Come November, the new Chancellor Jeremy Hunt then raised the windfall tax to 35% as part of his autumn statement, following the market turmoil left by Liz Truss's short tenure and her so-called mini-Budget.

But whether companies are paying this tax is complicated - often companies get credits for investments within the UK, which brings their payments down (companies get tax breaks worth 91p for every £1 invested). The announcement of the most recent energy levy meant Shell is now paying taxes in the UK for the first time since 2017.

What has Labour said?


After a raft of record profits was announced in February, shadow climate secretary Ed Miliband hit out at the government and again promised Labour would introduce a "proper" windfall tax on energy companies.

"It cannot be right that, as oil and gas giants rake in the windfalls of war, Rishi Sunak's Conservatives refuse to implement a proper windfall tax that would make them pay their fair share," Mr Miliband tweeted.

"Labour would use a real windfall tax to stop the energy price cap going up in April."

Labour's shadow chancellor Rachel Reeves also said in January her party would extend the windfall tax again to help households and businesses facing further energy price hikes in April.

What are the arguments against a windfall tax?


Oil and gas companies already pay an elevated rate of corporation tax, at 30% on their upstream profits - compared to 19% for most other companies.

They also pay a "supplementary charge" of 10%, so the sector was already being taxed at more than twice the rate of a typical business.

There are also concerns it could deter investment in the North Sea and would leave the UK even more reliant on oil and gas from overseas. With the UK trying to wean itself off Russian imports, this could see prices rocket even further.

A tax could deter investment in the North Sea


Has the UK introduced a windfall tax before?


One of the most famous examples of a windfall tax in the UK was one announced by then-Chancellor Gordon Brown in 1997 when the privatised utilities were hit for around £5bn to pay for New Labour's "welfare to work programme".

Mr Brown introduced a windfall tax on more than 30 companies that had been privatised by previous Conservative governments.

Among them were Scottish Power, BT and BAA.

Mr Brown introduced windfall taxes in his 1997 budget


Labour said these companies had been undervalued when they were privatised and the tax raised £5.2bn over two years.

In 1981, the Conservative government imposed a similar levy on banks, arguing they had benefited from high interest rates.

Newsletter

Related Articles

0:00
0:00
Close
Piddington Residents Back Symbolic Independence Vote Over Asylum Accommodation Plan
Reform UK Names Helen Jenner as New Leader in Wales
England Expands Devolution of Transport, Skills and Economic Development Powers
Liberal Democrats Call for Temporary Fuel Duty Cut to Ease Cost-of-Living Pressure
UK Farmers Warn Drought Has Caused Crop Failures and Reduced Harvests
UK Fixed Mortgage Rates Approach 6% as Lenders Raise Borrowing Costs
YouGov Poll Puts Labour at 23% With Conservatives and Reform UK on 21%
Badenoch Presses Burnham to Increase Defence Spending and Cut Welfare Costs
UK Military Figures Warn of Growing Threats to Undersea Infrastructure and National Readiness
BP Moves Ahead With Sale of UK North Sea Oil and Gas Business
UK and ASEAN Endorse New Framework for Trade and Economic Cooperation
UK Consumer Confidence Falls to Three-Year Low as Borrowing Costs and Job Concerns Rise
UK Inflation Rises to 3.1% as Motor Fuel Costs Push Prices Higher
Bank of England Sets Multi-Year Plan to Wind Down Quantitative Easing Holdings
UK Borrowing Rises to £18.3 Billion in August Ahead of October Budget
Michelin Guide Faces Industry Questions Over Restaurant Inspection Coverage
English Woodlands Face Renewed Weather Stress From Dry Conditions and Strong Winds
Research Finds Extensive Alcohol, Gambling and Unhealthy Food Branding During 2026 World Cup
Five Charged After Newborn Baby Dies From Stab Wounds in Sheffield
BT Could Reap £2 Billion From Recycling Copper as Full-Fibre Network Expands
FCA Urges Young Adults to Trace £1.5 Billion in Unclaimed Child Trust Funds
Reform UK Names Helen Jenner as New Leader in Wales After Dan Thomas Steps Down
Resolution Foundation Calls for Broad-Based Tax Rises to Fund Higher UK Defence Spending
Ed Davey Calls for Global Treaty to Halt Development of Super-Intelligent AI
Scotland Consults on Legal Price Caps for Essential Foods
NHS Productivity Reforms Could Prevent More Than 20,000 Early Deaths a Year, Report Says
United Kingdom and ASEAN Deepen Trade and Investment Cooperation
United Kingdom Deploys RAF Refuelling Support to Saudi Arabia After Houthi Attacks
UK Fiscal Headroom Shrinks as Higher Borrowing Costs Complicate Autumn Budget
UK Public Borrowing Jumps to £18.3 Billion in August, Raising Pressure Before Budget
Andy Burnham Reaffirms UK Net-Zero Target With £30 Million Community Energy Fund
Scottish Labour Leader Backs Rosebank and Jackdaw North Sea Projects
UK Consumer Confidence Falls to Three-Year Low
UK Diesel Prices Approach £2 a Litre as Global Supply Shortages Intensify
Chiltern Railways Returns to Public Ownership as UK Rail Nationalisation Advances
British Museum Faces Questions Over Peter Thiel’s Private Bayeux Tapestry Viewing
Earl Spencer Memoir Excerpts Renew Public Debate Over Diana’s Death
Liberal Democrats Gather in Brighton for Autumn Conference
Mothercare Shares Plunge as Middle East Store Closures Threaten Long-Term Solvency
Kent Police Treat Folkestone Hotel Fire as Suspicious
Caribbean Governments Advance Reparations Campaign Seeking Engagement With Britain
Scottish Labour Leader Backs Rosebank and Jackdaw North Sea Projects
FCA Urges Young Adults to Trace £1.5 Billion in Unclaimed Child Trust Funds
UK Competition Regulator Opens Inquiry Into McCormick-Unilever Foods Deal
Public Inquiry Into Tees, Esk and Wear Valleys Mental Health Failings Set to Begin
Nigel Farage Looks to US Immigration Enforcement Model for UK Border Policy
Chiltern Railways Moves Into Public Ownership
Security Review Raises Concerns Over Sensitive UK Police Data Stored on Microsoft Cloud
Burnham Government Warns of Difficult Autumn Budget as Fiscal Headroom Narrows
Bank of England Holds Rates at 3.75% as Inflation Rises to 3.1%
×