The UK's Energy Profits Levy (EPL) is currently legislated to run until 2030, but it contains a mechanism for earlier termination. This mechanism stipulates that the levy will fall away if both crude oil and gas prices drop below designated thresholds for a prolonged period. In such an event, the EPL would be replaced by a price shock mechanism designed to apply only during periods of high prices.

Forecast for Early Termination

The Office for Budget Responsibility (OBR) forecasts that this early termination will occur. Based on price projections, it anticipates both oil and gas prices will fall below the required thresholds in the second and third quarters of 2027. Consequently, the OBR assumes the EPL will cease raising tax revenue from the end of September 2027. This forecast represents an earlier end to the levy than previously expected.

Price Projections and Recent Volatility

The OBR's latest forecast sets specific price levels for 2026 and 2027: crude at $63.09 per barrel and gas at £0.70 per therm. These figures are lower than the previous forecast from November. However, recent geopolitical events, including US and Israeli strikes on Iran, have caused a surge in global crude and gas prices, which may impact these forecasts.

Government Engagement and Policy Context

The UK Chancellor is scheduled to meet with North Sea operators to discuss surging commodity prices and the fiscal regime. This follows extensive recent discussions between the Treasury and industry regarding the potential rollback of the EPL from next year. Scrapping the levy before its automatic mechanism triggers would represent a significant policy reversal for the government, which was elected on a platform of decarbonising the power sector and restricting North Sea upstream activity. The industry argues the EPL has accelerated the decline of the UK North Sea sector.