Should loopholes for tax incentives be removed from the UK government’s windfall tax could generate around £22 billion in additional revenue, research from the New Economics Foundation (NEF) has found.
The government’s investment allowance loophole is a highly controversial policy that enables oil and gas firms, those that are heavy carbon emitters, to secure around 91% of its capital investment in the form of tax relief.
In doing so, this allows these energy giants to continue to make significant profits off the back of oil and gas assets with no minimal damage to its revenue streams.
Renewables on the other hand, which are widely recognised as a means to escape the energy crisis, have limitations put in place via the windfall tax, creating little incentive to invest in renewable projects.
The loophole has already been exploited by companies including Shell, which paid no windfall tax this year despite the tax operating since May, NEF said. Shell posted profits of £8.2 billion ($9.5 billion) in Q3 2022 – more than double what the oil and gas major made in the same period during 2021, when it made $4.2 billion.
The research had been created by NEF for the Warm this Winter coalition, which includes End Fuel Poverty Coalition, Possible, Uplift and Green Alliance. The report analysed the savings from a programme of tax and spend that the chancellor could have chosen instead, focusing on energy efficiency and insulation.