- Offshore Energies UK is calling on Chancellor John Healey to replace the Energy Profits Levy with the new Oil and Gas Revenue Levy from January 2027, more than three years earlier than currently planned.
- The industry body estimates fiscal reform could unlock £50bn of additional capital investment, generate £70bn of economic value and support an extra 1.3bn barrels of UK oil and gas production by 2035.
- The government has already designed the successor tax, but current legislation would only introduce it after the Energy Profits Levy ends in March 2030, unless existing price triggers terminate the windfall levy earlier.
Offshore Energies UK (OEUK) has urged the government to accelerate a planned overhaul of North Sea taxation, arguing that bringing forward the industry’s new permanent tax regime could unlock tens of billions of pounds of investment and slow the decline of domestic oil and gas production.
In its submission ahead of the 28 October budget, OEUK called for the proposed Oil and Gas Revenue Levy (OGRL) to take effect from January 2027, replacing the current Energy Profits Levy more than three years ahead of its scheduled expiry.
The trade body estimates that changes to the investment environment could unlock an additional £50bn of capital, including £32bn over the next decade, and generate £70bn of economic value from additional domestic oil and gas activity.
Its modelling also puts the potential fiscal benefit at £14.9bn in additional production and payroll taxes over the next decade, while estimating that 1.3bn barrels of additional oil and gas could be produced by 2035.
The figures form part of a renewed industry push to persuade the government that a faster fiscal reset would ultimately generate more investment and tax revenue than retaining the existing windfall levy.
OEUK chief executive David Whitehouse said the North Sea could support the government’s wider objectives around growth, industrial policy and energy security.
“With the right budget choices, this sector can unlock billions of pounds of private investment, support jobs in every constituency across the whole of the UK, strengthen energy security and deliver more tax revenue for the Exchequer,” he said.
Industry targets 2027 tax reset
The immediate argument centres on the Energy Profits Levy, which currently adds a 38% charge to the existing North Sea fiscal regime and takes the headline tax rate on upstream oil and gas profits to 78%. It is scheduled to remain in place until 31 March 2030, although it can end earlier if oil and gas prices remain below thresholds set by the Energy Security Investment Mechanism.
The government has already published draft legislation for its replacement, the OGRL. The permanent mechanism would impose a 35% charge on the portion of oil and gas revenues above specified price thresholds, rather than applying continuously to company profits.
Under current plans, however, the new levy does not begin until the EPL ends in 2030, or earlier if the existing price mechanism is triggered. OEUK’s proposal is therefore not for the government to abandon its new tax structure but to accelerate its introduction by more than three years.
Whitehouse said the existing levy was continuing to deter capital.
“Bringing forward the OGRL to January 2027 would send a clear signal that the UK is serious about backing domestic production over imports,” he said.
The industry’s argument is that the current system maximises tax rates on a shrinking production base, while a less punitive regime could encourage companies to sanction projects that would otherwise remain uneconomic.
That remains contested. The government introduced and later increased the EPL to capture unusually high profits associated with the energy crisis, and says revenues raised by the levy help support the transition towards lower-carbon domestic energy. The levy has raised around £12bn since its introduction in 2022.
Import dependence supports OEUK argument
OEUK’s energy security case is supported by the direction of official statistics.
The UK met 43.5% of its overall energy requirements through net imports in 2025, broadly unchanged from 43.8% a year earlier. Norway and the US were the country’s principal external energy suppliers.
At the same time, total UK energy production fell to a record low of 94 million tonnes of oil equivalent last year, 68% below its 1999 peak. Fossil fuels nevertheless continued to account for 75.2% of UK primary energy consumption.
OEUK says domestic oil and gas production has fallen around 40% over five years and could halve again by 2030 without additional investment. Earlier analysis commissioned by the organisation has identified dozens of projects that it argues could become commercially viable under more favourable fiscal conditions.
There is an important distinction between declining output and the cause of that decline. OEUK attributes the acceleration principally to fiscal and policy uncertainty; the UK Continental Shelf is also a mature basin, so depletion, project economics and ageing infrastructure contribute to the underlying downward trajectory.
The North Sea Transition Authority’s latest official projections continue to show declining UK oil and gas production over the coming decades.
Offshore wind and CCS included in wider pitch
OEUK is also using its budget submission to argue against treating oil and gas policy separately from the wider offshore transition.
The organisation wants continued Contracts for Difference support for offshore wind, reform of transmission charging and faster deployment of carbon capture and storage, including infrastructure capable of importing CO2 for permanent storage beneath the North Sea.
Its economic case rests partly on the overlap between the workforces and supply chains supporting these industries.
Research commissioned by OEUK puts the economic contribution of UK offshore oil and gas and offshore wind at £36.2bn in 2024, supporting around 241,000 jobs. Similar figures have appeared in the organisation’s subsequent workforce and economic assessments, although they are industry-commissioned estimates rather than official employment statistics.
Whitehouse said weakening the oil and gas supply chain could ultimately undermine newer industries.
“This is not a choice between today’s energy security and tomorrow’s clean energy system,” he said. “The same world-class supply chain that supports domestic oil and gas is essential to offshore wind, carbon storage and hydrogen.”
The policy challenge is ensuring capacity transfers into growing low-carbon sectors rather than simply prolonging dependence on declining hydrocarbon activity.
OEUK’s own 2026 offshore wind analysis identifies transmission charging, grid constraints, project economics and supply chain competitiveness as obstacles to future investment, while January’s Contracts for Difference round secured 8.4 GW of new offshore wind capacity backed by more than £22bn of expected private investment.
Budget sets up key North Sea decision
The autumn budget therefore gives the government a relatively clear choice on the tax timetable.
Its long-term replacement for the EPL has already been designed. The unresolved issue is whether the existing 78% headline regime should remain until 2030 or give way much sooner to a price-responsive mechanism intended to tax producers more heavily only when commodity prices are elevated.
OEUK argues January 2027 would be early enough to revive projects currently approaching investment decisions and prevent further erosion of the domestic supply chain.
The Treasury will have to weigh those claims against the near-term revenues surrendered by ending the EPL early and the wider objective of reducing fossil fuel dependence.
For North Sea industry, the significance of the budget is greater than another adjustment to tax rates. Companies are increasingly making decisions about whether mature UK assets can compete for capital against opportunities overseas. BP’s decision this summer to put its entire UK North Sea business up for sale illustrated how quickly that portfolio reassessment is progressing.
A faster move to the OGRL would provide industry with much of the fiscal reset it has been demanding. Whether it delivers the £50bn of investment and £70bn of economic value claimed by OEUK will depend not just on tax, but on commodity prices, licensing decisions, project costs and whether companies are willing to put fresh capital into one of the world’s most mature offshore basins.
