Windfall tax to fall if oil and gas prices drop

The windfall tax on oil and gas firms will be reduced if prices fall to normal levels for a sustained period, the government has announced.

The tax rate on firms will drop from 75% to 40% if that happened, it said.

A windfall tax is used to target firms which benefit from something they were not responsible for.

It was introduced by the government last year to help fund its scheme to lower energy bills for households and businesses.

Energy firm profits have soared recently, initially due to rising demand after Covid restrictions were lifted, and then because Russia's invasion of Ukraine raised energy prices.

But oil and gas prices have now come down from their highs.

In a statement, the Treasury said the windfall tax would remain until March 2028 but that the tax rate would fall if the average oil and gas prices fall to, or below, a set level for two consecutive three-month periods.

The level has been set at $71.40 per barrel for oil and £0.54 per therm for gas.