Extend the Energy Profits Levy

Policy baseline

Labour pledged to extend and increase the Energy Profits Levy. Receipts depend on oil and gas prices, investment response and field profitability.

• Levy applies to North Sea oil and gas profits.
• Investment allowances are tightened.
• Receipts are volatile and temporary.

Core trade-offs

The direct beneficiaries are the exchequer and clean-energy funding. The costs fall mainly on oil and gas producers and investors. The main economic question is higher tax may reduce domestic investment.

• The exchequer and clean-energy funding gain most directly.
• Costs fall mainly on oil and gas producers and investors.
• Key risk: higher tax may reduce domestic investment.

Fiscal impact by 2028-29

-GBP 3.5bn to +GBP 0.8bn. Central estimate: -GBP 1.8bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: Little direct job effect; sector-specific taxes can reduce hiring in affected industries.
• Wages: Legal taxpayers may shift costs to workers, owners or consumers over time.
• Prices: Some pass-through likely where market power or fixed demand exists.
• GDP / productivity: Usually mildly negative before spending use; stronger if investment or mobility responses rise.

Assessment

This is a real trade-off, not a free gain. The exchequer and clean-energy funding benefit, while oil and gas producers and investors bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Behavioural response: Avoidance, timing and relocation can reduce receipts.
• Incidence uncertainty: Legal taxpayers may shift costs to workers, consumers or investors.
• Investment risk: Higher taxes can reduce investment where returns are mobile.

Safeguards

• Use HMRC microsimulation before legislating.
• Close avoidance routes before rate rises.
• Review receipts and investment annually.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for extend the energy profits levy Internal - PolicyLens, 2026
• Autumn Budget 2024 policy costings UK government costing - HM Treasury, 2024
• Corporate Income Tax Reforms and International Tax Competition Academic article - Devereux, Griffith and Klemm, Economic Policy, 2002
• Do Environmental Regulations Cause Industry Flight? Academic article - Kahn and Mansur, Journal of Public Economics, 2013
• Economic and fiscal outlook October 2024 UK fiscal forecast - Office for Budget Responsibility, 2024
• Change: Labour Party Manifesto 2024 Party policy source - Labour Party, 2024

Other Labour policies

• Raise employer National Insurance
• Apply VAT to private school fees
• Replace non-dom tax status
• Raise capital gains tax rates
• Capitalise the National Wealth Fund
• Capitalise Great British Energy
• Expand the Warm Homes Plan
• Move renewables charges to tax