Chancellor Rachel Reeves is considering plans to scrap the windfall tax on North Sea oil and gas producers to boost investment and boost economic growth.
The Energy Profits Levy (EPL), introduced in 2022 under Rishi Sunak amid rising global energy prices, currently imposes an effective tax rate of 78 percent on North Sea operators. The Treasury is now considering ending the levy early as fears grow that it would stifle capital investment and threaten the UK’s domestic energy production.
Sources involved in the discussions said officials had consulted with major North Sea operators to estimate how much they would reinvest if the tax was abolished. The move would mark a dramatic shift for the Labor government, which had previously supported expanding the levy but is now facing increasing pressure to prioritize growth.
Industry body Offshore Energies UK (OEUK) has warned that the sector is shedding 1,000 jobs a month as a direct result of the levy, with both investment and production falling faster than expected. The group has called on the Chancellor to replace the tax with a more stable, long-term tax framework, arguing that uncertainty over the levy is encouraging companies to move their investment abroad.
The Office for Budget Responsibility (OBR) previously estimated that Ms Reeves’ decision to increase the levy from 75 to 78 per cent and extend it by a year until 2030 would raise around £1 billion. However, it also warned that this move would lead to a 25 percent drop in investment and a fall in output of up to 9.2 percent compared to forecasts under the previous conservative regime.
Oil and gas revenues were also lower than forecast. The Treasury’s March consultation acknowledged that the EPL was initially expected to generate £19 billion by 2030, but weaker energy prices and falling production have resulted in lower returns.
Under current rules, ministers can scrap the levy once oil and gas prices fall below $71.40 a barrel and 54 pence a therm for at least six months. While gas prices remain above pre-crisis levels, Brent crude traded below $70 for most of 2025, potentially triggering conditions for the levy to be scrapped.
As well as the autumn budget, Labor is expected to unveil a new energy strategy for the North Sea, outlining how the government will support “domestic energy” and encourage new exploration. Prime Minister Sir Keir Starmer has pledged to “double” domestic oil and gas production to protect the UK’s energy security and reduce dependence on imports.
The possible tax cut comes against the backdrop of a deteriorating economic situation. The OBR recently warned that sluggish productivity growth has left the UK economy unable to grow at its previous pace and has left a hole of more than £20 billion in public finances.
Ms Reeves is under increasing pressure to devise a credible growth strategy that restores business confidence. The Treasury hopes that signaling a more stable investment environment for energy producers could boost capital spending, protect jobs and demonstrate fiscal pragmatism ahead of the budget.
Any decision will depend heavily on the OBR’s final analysis of whether abolishing the levy would generate sufficient economic returns to offset the short-term loss of revenue. Treasury officials are also exploring whether the levy could be replaced with a permanent variable tax that would be levied only when prices exceed certain thresholds – a measure intended to strike a balance between revenue stability and investor safety.
Energy companies have cautiously welcomed the prospect of reforms. A senior executive said ending the levy early would represent “a game-changer” in investment decisions. “The UK has world-class energy resources, but the fiscal environment has been toxic,” they said. “If Labor follows through, it would be a strong signal that Britain is open to energy investment again.”
The Treasury Department declined to comment on whether changes to the windfall tax will be included in the budget.
