The Chancellor delivered the Spring Budget 2024 today. We summarise below the announcements that were made on the specific rules that may be relevant to UK upstream oil and gas companies.
Extension of Energy Profits Levy
The Government announced that the Energy Profits Levy will be extended for 12 months so that it will now apply to 31 March 2029. The change results in additional tax receipts of £1.53bn. The Chancellor justified the extension by stating that the higher energy price environment was now expected to last longer.
The current system of investment expenditure incentives was confirmed as continuing to apply.
Documents published alongside the Spring Budget state this extension will not be included in the Spring Finance Bill 2024 but will be included in a future Finance Bill. Therefore, this extension will not be substantively enacted for accounting purposes as the Spring Finance Bill 2024 passes through Parliament. When this proposal will be substantively enacted for accounting purposes is therefore unclear.
Energy Security Investment Mechanism (‘ESIM’)
The Government announced at Autumn Statement that the ESIM, through which the Energy Profits Levy (EPL) will be terminated early in the event oil and gas prices fall below a threshold, will be legislated. Spring Budget confirmed that intention and published a revised policy paper setting out the proposals. The proposals do not appear to have changed since Autumn Statement.
Therefore, the threshold prices are $71.40/barrel for oil and £0.54/therm for gas. These threshold prices will be indexed annually from 1 April 2024 using the preceding December’s Consumer Prices Index. The ESIM will trigger the abolition of EPL from the last day of the 6-month rolling reference period, when both oil and gas average prices in the 6 months have fallen below the threshold.
The legislation enacting this change will be enabled by a change to the Energy Profits Levy Act 2022 provided by the Spring Finance Bill 2024 with the details of the ESIM included in Regulations.
The costing for the ESIM has been published. There is no cost to Government for implementing this proposal. This indicates, not unsurprisingly given the design of the ESIM, that the current expectations on oil and gas prices mean the ESIM will not trigger.
Full expensing for leased assets
In Budget 2023, the Government announced that certain expenditure on plant and machinery could qualify for full tax relief at 100%. However, the plant and machinery needed to be new and unused and could not be acquired for leasing.
At Spring Budget 2024, the Government announced that it would seek to extend full expensing for assets acquired for leasing but that those changes would only apply when “fiscal conditions allow”. Draft legislation and consultation is expected shortly.
Comment:
The extension of EPL is very disappointing, as once again there is a negative change to the UK’s fiscal regime for oil and gas. Government time and again promised that EPL would end on 31 March 2028. This undertaking was most recently reiterated in the HM Treasury document published at the time of the 2023 Autumn Statement setting out the outcome and summary responses to the Oil and Gas Fiscal Review which stated “By confirming the EPL will end in March 2028 at the latest, the government provides certainty in the medium-term…….”.
Sentiment will be damaged once again.
CW Energy LLP
March 2024