This Forecast in-depth page has been updated with information available at the time of the March 2024 Economic and fiscal outlook. We are aware of a technical issue with our tableau charts across the site. Access the data from our March 2024 forecast supporting spreadsheets directly.

UK oil and gas revenues consist of offshore corporation tax (which includes ‘ring fence’ corporation tax and the supplementary charge), petroleum revenue tax and the energy profits levy (EPL). These taxes apply to the profits of companies involved in the production of oil and gas in the UK and on the UK continental shelf (UKCS) (“The North Sea”). In 2024-25 we forecast that oil and gas revenues will raise £3.8 billion. The four streams of revenue are:

  • ‘Ring fence’ corporation tax (RFCT) is calculated in the same way as onshore corporation tax, but with the addition of a ‘ring fence’ and the availability of 100 per cent first-year allowances for virtually all capital expenditure. The ring fence prevents taxable profits from oil and gas extraction in the UK and the UKCS being reduced by losses from other activities. The current rate of tax on ring-fenced profits is 30 per cent.
  • The supplementary charge (SC) is an additional charge on a company’s ring-fenced profits (but with no deduction for finance costs). The current supplementary charge rate is 10 per cent. It was reduced from 20 per cent on 1 January 2016.
  • Petroleum revenue tax (PRT) is a ‘field-based’ tax charged on the profits arising from individual oil and gas fields that were approved for development before 16 March 1993. The rate of PRT was permanently set at zero per cent effective from 1 January 2016 but it has not been abolished so that losses (such as losses arising from decommissioning PRT-liable fields) can be carried back against past PRT payments. PRT was deductible as an expense in computing profits chargeable to RFCT and SC.
  • The energy profits levy (EPL) is an additional surcharge on the profits of oil and gas companies, which came into effect on 26 May 2022. The surcharge was initially set at 25 per cent and due to expire by 31 December 2025. The 2022 Autumn Statement increased the rate to 35 per cent from 1 January 2023 and extended the levy until March 2028. Spring Budget 2024 extended it for an additional year to March 31 2029.

  Forecast methodology

We commission forecasts of UK oil and gas revenues from HM Revenue and Customs for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then use different models to forecast growth in receipts from that starting point. We provide HMRC with economic forecasts that are then used to generate the tax forecasts. These are scrutinised in a challenge process that typically involves two rounds of meetings where HMRC analysts present forecasts to the Budget Responsibility Committee and OBR staff. We also discuss determinants of the forecast with officials from the North Sea Transition Authority (NSTA). This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks.

Forecasting models

The UK oil and gas forecast uses a micro-simulation model based on production and expenditure data from each individual oil and gas field. This field level data is collected through a survey now carried out by the NSTA. The fully disaggregated data in the model are subject to taxpayer confidentiality, so we only scrutinise the results of the model not the individual field-level inputs. Our forecasts of aggregate levels of oil and gas production and levels of expenditure, along with other determinants – oil and gas prices, the sterling/dollar exchange rate – are fed into the model to produce estimates of tax revenues. Our production and expenditure forecasts are informed by the central projections produced by the NSTA.

Main forecast determinants

The main determinants of our UK oil and gas revenues forecast are those related to the tax base and those that are used by the Government in setting parameters of the tax system. See the ready reckoners section below for more information on the effects of these determinants on UK oil and gas revenues.

    • Dollar oil price
    • Sterling/dollar exchange rate
    • Oil and gas production
    • Operating and capital expenditure
    • Decommissioning costs

Main forecast judgements

We need to make several forecast judgements to generate our UK oil and gas revenue forecast. These include:

    • The level of oil and gas production – the tax base (the level of profits generated by the North Sea) is dependent on the quantity of oil and gas extracted. Our assumption on future production levels is informed by the central projections published by the NSTA. Levels of production are driven by a number of factors, including the amount of oil and gas remaining in the UKCS, levels of investment in previous years and the size and duration of extraction outages.
    • Oil and gas prices – we assume that these prices move in line with market expectations over the next three years, and then remain flat in real terms thereafter.
    • Levels of expenditure on the UKCS determine both the future path of production and the value of allowances that can be used to offset against tax liabilities. Our assumption is informed by the central projections produced by the NSTA.

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  Previous forecasts

With oil and gas revenues falling steeply between 2010 and 2016, our forecasts proved repeatedly too high. This reflected lower-than-expected prices and production, higher expenditure by oil and gas firms and reductions in tax rates from 2014 onwards.

Differences between forecasts and outturn were then smaller, with oil and gas revenues remaining at a low level. Previous forecasts for 2022-23 and 2023-24 (apart from our November 2022 forecast which was conditioned on very high gas prices) are all likely to prove pessimistic given much higher oil and gas prices and the increase in the effective tax rate following the introduction of the energy profits levy.

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  Policy measures

Since our first forecast in June 2010, governments have announced a number of policy measures affecting our forecast for oil and gas receipts. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Chapter 3 of the relevant Economic and fiscal outlook (Annex A prior to the March 2023 EFO).

Key oil and gas policy changes announced since 2010 have included:

    • the rate of the supplementary charge was increased from 20 to 32 per cent at Budget 2011. It was then reduced to 30 per cent at Autumn Statement 2014, then to 20 per cent at Budget 2015 and 10 per cent at Budget 2016;
    • the rate of petroleum revenue tax was cut from 50 to 35 per cent at Budget 2015 and was then cut all the way to zero at Budget 2016;
    • investment allowances were introduced at Budget 2015; and
    • the energy profits levy was introduced in May 2022 at a rate of 25 per cent and further raised to 35 per cent from the start of 2023, announced at Autumn Statement 2022. The levy has an end date of 31 March 2029.

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  Ready reckoners

‘Ready reckoners’ show how our fiscal forecasts could be affected by changes in selected economic determinants. They are stylised quantifications that reflect the typical impact of changes in economic variables on receipts and spending. These estimates are specific to our March 2023 forecast and we would expect them to become outdated over time, as the economy and public finances, and the policy setting, continue to evolve. They are subject to uncertainty because they are based on models that draw on historical relationships or simulations of policy settings. More information can be found in the ‘Tax and spending ready reckoners’ spreadsheet published on the data section of our website.

The table below shows that:

  • the profits of UK oil and gas companies – and therefore their tax liabilities – are directly affected by changes in the oil price. Receipts will also be affected by the level of production and expenditure, which will themselves be influenced by the oil price, although the simple ready reckoner presented below does not factor in any variation in production or expenditure relative to the baseline.
WordPress Data Table

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