Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment his Department has made of the potential impact of the Energy Profits Levy on (a) clean energy producers and (b) encouraging energy producers to produce clean energy.

The Energy Profits Levy (EPL) was introduced in May 2022 in response to sharp increases in oil and gas prices over the past year. At the Autumn Statement 2022, the Chancellor announced that the rate of the levy would rise by ten percentage points to 35% and will last until 31 March 2028. The Levy applies to profits earned by companies from the production of oil and gas in the UK or on the UK Continental Shelf.

The government has been clear it wants to see the oil and gas sector reinvest its profits to support the economy, jobs and the UK’s energy security. That is why the levy includes a new investment allowance, ensuring that for every £1 an oil and gas company spends, they can claim around 91p in tax relief for most types of investment expenditure.

For every £100 an oil and gas company invests to decarbonise upstream oil and gas production, they will be able to deduct £109.25 when calculating their levy profits. This provides an immediate and significant fiscal incentive to reinvest profits in the UK.

Since the levy is targeted at the extraordinary profits from oil and gas upstream activities, any relief for investment must also be related to oil and gas upstream activities. Therefore, tax relief is only available in relation to expenditure incurred for activity that is charged under the oil and gas ring fence corporation tax regime. For other investments, such as renewables, companies will continue to be able to claim relief for their investments from the Corporation Tax they pay.

In addition, the government is taking significant action to encourage investment in renewable energy generation in the UK, including committing £30 billion to support the domestic green industrial revolution from March 2021 to the end of 2027-28.