UK Budget 2025: Energy Profits Levy Extended – A Blow for the Sector

19 Dec 2025

By Calum Crighton, Partner, Head of Energy at Gilson Gray.

Overview

The UK government’s Budget on 26 November 2025 confirmed what many in the oil and gas sector feared: the Energy Profits Levy (EPL) will remain in place well beyond 2026. Despite repeated calls for its removal to restore competitiveness, the Chancellor announced that the levy will continue until March 2030, unless price triggers are met earlier.

What the industry lobbied for vs. reality

• Industry expectation: A rollback of the EPL in 2026 to encourage investment and protect jobs.
• Budget reality: No early removal. Instead, a commitment to maintain the levy until 2030 or until the Energy Security Investment Mechanism (ESIM) triggers its cessation.

This decision is widely viewed as a major setback for the UKCS, where operators are already grappling with declining production and rising costs.

Trigger Mechanism

EPL will only end if the six-month average price falls below:

• $71.40 per barrel for oil, and
• £0.54 per therm for gas.

It is important to note that both conditions need to be met, which is considered unlikely in the near term, meaning the levy could persist for years and indeed, quite possibly until 2030.

“Windfall” tax?

In announcing the future Oil and Gas Price Mechanism (OGPM), has the government acknowledged that a true ‘windfall’ only occurs at $90 per barrel for oil and £0.90 per therm for gas?

These levels are far above the current ESIM thresholds, yet the EPL remains pegged to the much lower price points, creating a perceived disconnect between policy intent and practical reality.

This inconsistency has been criticised as punitive and short-sighted, especially given the mature nature of UKCS and the need for fiscal stability to attract investment.

What Happens in 2030?

If the ESIM trigger is not met before March 2030:

• EPL ends, replaced by the OGPM.
• 40% headline tax rate.
• Additional 35% surcharge when prices exceed $90/bbl and £0.90/therm.

While OGPM offers a more structured approach, waiting until 2030 may simply be too late for the UKCS, from a shorter-term oil & gas industry perspective as well as a longer-term energy transition perspective.

Industry Reaction

• Disappointment and concern dominate the response.
• The extended EPL is seen as:
  • Detrimental to investment in UK oil and gas projects.
  • A risk to jobs and supply chain stability.
  • Potentially accelerating decommissioning activity rather than new developments.
• Many argue this undermines the UK’s ability to balance energy security with net-zero ambitions.

Impact on Supply Chain

The consequences extend far beyond operators:

• Reduced project pipeline: Fewer new developments means less work for engineering, fabrication, and service companies.
• Job losses and consolidation: Companies at all tiers in the supply chain face huge risk, with many already reporting stalled contracts.
• Innovation slowdown: Investment in technology and decarbonisation projects could be deprioritised as margins tighten.
• Regional economies hit: Areas like Aberdeen and the North East, will continue to experience significant economic strain as so many businesses, families and wider economy relies to varying extent on the oil & gas and energy industries.

Practical Takeaways

• Reassess investment plans: Factor in prolonged EPL exposure.
• Engage in policy dialogue: Industry voices must continue to press for fiscal stability.
• Scenario planning: Model tax implications under both EPL and OGPM regimes.
• Diversification strategies: Supply chain firms should explore global, renewables and decommissioning opportunities to offset reduced upstream activity.

Summary

The government’s decision to keep the EPL until 2030 – absent significant price drops – marks a critical moment for the UK oil and gas sector. While a future mechanism is promised, the immediate reality is a continued “windfall” tax that erodes competitiveness, threatens jobs, and destabilises the supply chain, despite the apparent recognition that true “windfalls” only occur at much higher price levels.

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