The Government launched a consultation on 5 March 2025 concerning the replacement of the Energy Profits Levy (EPL). The EPL was introduced in 2022 in response to extraordinary profits made by oil and gas companies driven by global circumstances including resurgent demand for energy post COVID-19, and Russia’s invasion of Ukraine. Prior to 2022, the UK’s oil and gas fiscal regime had no mechanism in place to respond to oil and gas shocks, and the EPL was introduced as an additional temporary tax on oil and gas companies’ ring-fenced profits.

The EPL is currently set to expire on 31 March 2030, or earlier if the Energy Security Investment Mechanism (ESIM) is triggered. The ESIM will trigger if the ESIM reference prices – calculated as the average price of oil and gas over the six-month reference period – are at or below the ESIM threshold price. 

The Government is now consulting on a more predictable and stable mechanism to replace the temporary EPL on a permanent basis.   

The Government’s consultation paper sets out the key objectives and possible design options of the new mechanism, inviting stakeholders to opine on numerous proposals. The paper highlights the significance of the new mechanism applying exclusively at times of “unusually high prices”, and as a means of allowing the Government to target excess profits of oil and gas companies. It also provides further detail around the metrics proposed in defining these thresholds. In addition to creating more certainty for stakeholders, the paper stresses minimising administrative burdens for taxpayers/HMRC and recognising the difference between oil and gas markets as added priorities. 

With respect to proposed design options, the paper sets out two possibilities for the new mechanism: 

1. a revenue-based model (RBM), which targets excess revenue for oil and gas sold above threshold prices; and 
2. a profit-based model (PBM), which targets a proportion of profits considered ‘unusually high’ by reference to ‘average market prices’ and thresholds. 

The Government encourages comments and views on this while expressing its preference for the RBM. 

Stakeholders are invited to provide any responses by 28 May 2025, with such feedback informing the development of the framework going forward.