The Government has made several amendments to the Energy Profits Levy such as including capital expenditure on electrification linked to fossil fuels in its investment allowance.
It has also decided to exclude petroleum revenue tax rebates from the levy, and confirmed the sunset clause will not be extended beyond December 2025.
This follows extensive talks between Downing Street and leading energy bodies including Offshore Energies UK (OEUK).
OEUK has confirmed to City A.M. it has already written to the new Chancellor Nadhim Zahawi seeking an urgent meeting, and has pushed for four further changes to the levy to reduce its impact on investment in the North Sea.
This includes a small profit allowance to be exempt from the levy, allowing capital spent during the pandemic to be deductible from the levy, more flexibility concerning losses, and more support for industry decarbonisation plans.
The Energy Profits Levy is a further 25 per cent on North Sea oil and gas operators, alongside the 40 per cent special corporation tax rate companies already pay.
The Government hopes this will raise a further £5bn this year to partially fund its £15bn support package to tame household energy bills, which are expected to rise to at least £2,800 per year this winter when energy use is at its peak.
The levy includes investment relief of up to 91 per cent to incentive further domestic energy generation in the North Sea such as oil and gas exploration.
However, there is continued concern in the North Sea energy sector that the tax will deter investment, with OEUK worried it could contribute to a decline in production on the UK’s continental shelf.
The UK is increasingly dependent on overseas suppliers such as Norway to meet its energy needs – with the country suffering shortages in output yesterday following strike action.
In recent weeks, Russia has been reducing flows into Europe and Kremlin-backed gas giant Gazprom turning off the taps to multiple countries already.
This has escalated fears of further supply shocks, amid speculation Russia could halt supplies completely following maintenance work later this month.
City A.M. has approached the Government for comment.