Autumn Budget: Could Rachel Reeves scrap the windfall tax amid political pressure?

Speculation around the Autumn Budget has just about reached fever pitch.

The chancellor is set to make some big decisions in the weeks ahead, and everyone has a suggestion of what Rachel Reeves should do.

One of those suggestions comes from the British Chamber of Commerce (BCC).

In their ‘top three tax asks’, they want Rachel Reeves to scrap the windfall tax on oil and gas firms and return tax rates on businesses to their old level.

Now, let’s be clear from the outset, the chances of that happening are slim.

The BCC believe the Energy Profits Levy (EPL) needs to go “as soon as possible”, and they are far from alone.

The industry, other business organisations and opposition politicians have all made similar calls.

But, right now, there seems to be very few listening in Number 11 Downing Street to their cries.

Latest figures from HMRC show the EPL brought in £3.6bn in 2023/24 but that dropped to £2.9bn the following year.

Lower production – business groups argue the EPL is stopping investment – and a drop in energy prices were to blame.

Now, the theory from some is to axe the windfall tax and you’ll encourage more investment in the North Sea, which will give you increased overall tax receipts from firms.

But, right now, when there’s so little headroom in the public finances, there is little appetite to cut tax on an industry which still divides opinion.

In all the headlines in recent weeks, and there have been plenty of them, about which taxes could be cut and which could rise, the windfall tax has been absent.

However, there might be something more political at play should Rachel Reeves choose to head down this road.

Reform UK has been unapologetically pro-oil and gas.

Nigel Farage recently came to Aberdeen and was clear in his praise of the industry and its vital national importance.

He was clear too; he wanted more drilling in the North Sea.

Then UK Conservative leader Kemi Badenoch said her party’s policy would be one of “maximum extraction” of oil and gas from UK waters.

At her party’s conference in Aberdeen, the deputy first minister, Kate Forbes, called on Rachel Reeves to scrap the windfall tax in November.

Instead, she called for it to be replaced with “a fair one that protects workers and enables the energy transition”.

The political pressure then from all sides might just be enough for the chancellor to at least consider a tweaking, if not rethinking entirely the EPL.

However, at a time when there’s talk of inheritance tax rises, creation of a wealth tax and whether Rachel Reeves can balance the books without breaking the election pledge not to raise the biggest three taxes, it’s unlikely oil and gas firms will be in for relief.

There’s little doubt the EPL has been blamed for a lot of ills in the industry.

It’s been claimed as the reason for pulled investment, for hundreds of job losses and for supply chain businesses considering relocating.

A treasury spokesperson said: “The chancellor has been clear that at Budget she will strike the right balance between making sure that we have enough money to fund our public services, whilst also ensuring that we can bring growth and investment to businesses.”

The UK Government says it won’t comment on speculation, but there’s plenty of that going around right now. Whether that will lead to any cuts for oil firms seems, for now, highly unlikely.