Source · Select Committees · Scottish Affairs Committee
Recommendation 6
6
Acknowledged
Unclear and disproportionate Energy Profits Levy accelerates North Sea decline, risking job losses.
Conclusion
We welcome the Government’s acknowledgement that it now needs to take action on the oil and gas industry’s fiscal environment. However, a lack of clarity on the fiscal regime beyond 2030 has created uncertainty for industry in the North Sea. The Energy Profits Levy at its current rate of 38%, which brings the headline rate of tax to 78%, is seen by many in industry as no longer proportionate. We are concerned that without reform the levy will accelerate the decline of the North Sea oil and gas industry and its associated supply chain, resulting in job losses. The UK will require oil and gas in its energy mix for decades to come and the fiscal regime should reflect that. (Conclusion, Paragraph 66)
Government Response Summary
The government acknowledges the committee's concerns about fiscal uncertainty, outlining its plan to end the Energy Profits Levy by March 2030 or earlier via a price floor, and to replace it with a new Oil and Gas Price Mechanism for long-term stability.
Government Response
Acknowledged
HM Government
Acknowledged
The government is committed to managing the North Sea in a way that ensures a fair, orderly and prosperous transition, while recognising domestic oil and gas will continue to have a role in the energy mix for decades to come. On tax, we are taking a responsible and proportionate approach which recognises the ongoing role of the oil and gas industry and workforce in our current energy mix while ensuring the sector contributes more towards our energy transition. The Autumn Budget 2025 set a clear path for the Energy Profits Levy (EPL) to end by March 2030 at the latest, or earlier if the EPL’s price floor, the Energy Security Investment Mechanism (ESIM), is triggered. The EPL ESIM will be triggered if the average oil price and the average gas price, over a period of 6 months, both fall below set threshold prices. The ESIM threshold prices which apply for the 2025–26 financial year are $76.12/barrel (oil) and 59p/therm (gas). These threshold prices are adjusted annually in line with inflation. While we recognise that oil and gas will continue to have a role in the energy mix during the transition, we also need to drive public and private investment towards cleaner energy. EPL revenues contribute to this objective and help support the funding of wider public services. As of December 2025, the levy has raised just under £12bn and is projected to raise around £8.5bn between 2025/26 and 2030/31. The EPL continues to include attractive tax relief to encourage ongoing investment in the oil and gas sector. Tax relief worth £84.25 is available for every £100 of private investment. This tax relief increases to £109 where the investment is targeted towards decarbonisation activities such as electrification. The government also recognises the importance of building long-term stability and certainty in the oil and gas fiscal regime. That is why Autumn Budget 2025 announced a new Oil and Gas Price Mechanism (OGPM) will replace the EPL when it ends, giving the oil and gas sector the long-term certainty and predictability it needs to plan future investments.