The new levy on North Sea oil and gas operators – dubbed the ‘windfall tax’ – failed to generate the government’s expected takings last month, confirmed the UK’s spending watchdog.
The Office for Budget Responsibility revealed the Energy Profits Levy did not provide the Treasury with its hoped-for windfall.
Cash receipts for December were a whopping £600m below expectations – equating to a 24.5 per cent dip on government forecasts.
This was the first instalment of EPL payments on 2022 profits, with the second and final instalment due in January.
The OBR suggests the shortfall could be a timing effect between both two months, and that it could also reflect the volatility in oil and gas prices – hampering the windfall tax’s takings.
Gas prices dropped sharply in December from £3.50 per therm at the start of the month to £1.86 per therm by the end of the year, according to end of day prices on the UK benchmark.
Costs have since fallen from £1.86 per therm to £1.47 per therm, suggesting a further slide in revenue takings in on the way.
Chancellor Jeremy Hunt hiked the windfall tax, which was first introduced in May, at the Autumn Statement last November.
He raised the EPL from 25 to 35 per cent, and extended the levy for three years from 2025 to 2028.
This is on top of the 40 per cent special corporation tax rate North Sea oil and gas operators already pay, and takes overall tax rates on profits for domestic producers to 75 per cent.
He also introduced the Electricity Generator Levy, an effective 45 per cent windfall tax on legacy renewable producers.
Both taxes are forecast to raise £55bn, which will be funelled towards relief for households and businesses grappling with record energy bills.
The North Sea Transition Authority has revealed a robust licensing round, with over 100 bids for licenses on potential exploration and development sites across the North Sea.
However, major players such as Harbour Energy opted to sit out the licensing round and have confirmed plans for a raft of job cuts.
Meanwhile, Shell has confirmed it will have to assess its plans to invest £25bn in UK energy projects this decade on a case-by-case basis.