Windfall tax raised 25pc less than forecast in December, official data shows

Jeremy Hunt - Stefan Rousseau/PA
Jeremy Hunt - Stefan Rousseau/PA

The Government's windfall tax on oil and gas companies raised £600m less than expected amid warnings that the growing tax burden on businesses is hampering investment in Britain.

The cash haul from the Energy Profits Levy (EPL) was 24.5pc less than forecast prepared by the Office for Budget Responsibility (OBR), the Government's fiscal watchdog, in November.

The windfall tax was first introduced in May when Rishi Sunak was chancellor, and was increased in the Autumn Statement after he became Prime Minister.

North Sea oil and gas profits are being taxed at 75pc until 2028. This is up from the regular rate of 40pc, and is being used to help fund massive government subsidies for households and businesses by clawing back what companies make from higher wholesale prices.

The Treasury expects to raise £7bn from the levy this financial year and £10bn next year. The Government has raised £3.7bn in extra revenues so far this financial year, according to the Office for National Statistics (ONS).

However, gas prices have fallen dramatically since last summer. Energy giants including Shell and Total have also warned that the levy risks harming investment.

Revenue from the EPL in December represents the first payment on 2022 profits, with the second and final instalment due in January.

The OBR said the shortfall “could therefore be a timing effect between these two months, or could reflect the volatility in oil and gas prices resulting in lower EPL liabilities than our forecast assumed”.

Gerard Lyons, chief economist at Netwealth and a former adviser to Boris Johnson, said that while it was too early to assess the impact of the EPL on investment and tax revenues, the “uncertain tax environment” linked to oil and gas exploration had “not been helpful to investment in the North Sea”.

He said: “I wouldn't put it down solely to the windfall tax, but this could always be the last straw that breaks the camel's back. It's just another indication of the unpredictable approach we've had to the North Sea which has often been seen as a cash cow in the past.”

ONS figures also showed onshore corporation tax cash receipts were 21.2pc higher than expected last month.

The OBR said the surplus was “due to higher-than-expected receipts from large and very large companies, partially offset by a shortfall from small companies”.

The OBR had expected strength in corporation tax receipts to “gradually diminish given the effects of wage and energy costs on profit margins”. However, the OBR added: “There is little sign of this being realised in the cash receipts data yet.”