UK energy companies and trade bodies are stepping up pressure on the government to overhaul the Energy Profits Levy (EPL)...
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Windfall Tax Under Fire: Energy Sector Calls for Reform
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Kate McCann
- 3 minute read
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UK energy companies and trade bodies are stepping up pressure on the government to overhaul the Energy Profits Levy (EPL) – better known as the windfall tax. They argue the policy is damaging investment, threatening jobs, and weakening the country’s energy security. With the Chancellor’s next Budget expected soon, the industry is warning that without change, the UK risks losing billions in future investment.
How the Windfall Tax Began
The government introduced the Energy Profits Levy in May 2022, under then-Chancellor Rishi Sunak. It was created as a response to soaring global energy prices following the pandemic and the war in Ukraine. Ministers said energy producers were making “extraordinary profits” and should contribute more to support households struggling with energy bills.
The windfall tax was set at 25% on top of the existing 40% headline rate of tax paid by oil and gas producers, taking the total to 65%. At the time, it was described as a temporary measure, due to end in December 2025.
Increases and Extensions
What started as a short-term tax has since become a long-term fixture. In November 2022, the government increased the levy from 25% to 35%, taking the total tax rate on North Sea oil and gas profits to 75%. In late 2024, the new Labour government raised the rate again to 38%, pushing the total to 78% – one of the highest in the world. At the same time, it extended the windfall tax until March 2030 and reduced several investment reliefs, making it harder for companies to offset costs.
These changes mean the levy now looks far from temporary. The industry says it is creating long-term uncertainty and undermining the UK’s competitiveness compared with countries like Norway and the United States.
Why the Industry Is Pushing Back Against Windfall Tax
What The Energy Sector Wants
Few are calling for the levy to disappear overnight. Instead, companies and trade groups want it replaced with a simpler and more predictable system. Many are calling for a price-linked tax that would only apply when oil or gas prices rise above an agreed level, combined with a clear timetable to phase out the current levy well before 2030.
They also want a stable policy window that gives investors confidence to commit to multi-year projects, along with transparent rules and thresholds that avoid the complex reliefs which have caused confusion. According to OEUK, a fairer and more consistent system could unlock up to £137 billion of additional value by 2050, protecting jobs and supply chains in the process.
What Happens Next?
The Autumn Budget 2025 is expected to be a key moment. The government has hinted at reviewing the structure of the EPL, but so far there is no sign of major change. A consultation is underway, and its outcome will shape how the sector invests over the next decade.
If the government keeps the current structure until 2030, industry leaders warn that investment will continue to shift abroad — eroding not only tax receipts but also the UK’s energy independence.
The Energy Profits Levy, AKA the windfall tax, was meant to be a short-term measure. Three years later, it has become a major obstacle for UK energy producers. The challenge for policymakers now is to design a tax regime that balances public revenue with long-term investment.