Rachel Reeves in line for £8bn windfall as energy tax rakes in MILLIONS for Treasury every day

Patrick O'Donnell
Tue, 31 Mar 2026 08:37:34 +0000

Chancellor Rachel Reeves is in line for an £8billion windfall thanks to the existing tax on North Sea oil and gas amid the US-Iran war.

Analysis suggests the Treasury's coffers will receive a significant boost as escalating Middle East hostilities push energy costs higher, swelling by approximately £20million each day through oil and gas-related levies.

Motorists are bearing the brunt of the crisis, with petrol costs reaching their highest point in 28 months.

The unexpected financial gain has sparked demands for ministers to deploy the funds to protect drivers and households from soaring energy expenses.

Analysis conducted for The Times reveals this substantial revenue increase would materialise if current elevated fuel prices persist over the coming year.

Chris Wheaton, an energy industry analyst at Stifel, calculated the Government's additional tax take using Office for Budget Responsibility figures from 2025.

His assessment indicates the energy profits levy on North Sea oil extraction would generate roughly £3.5billion in extra annual revenue, with gas sales contributing a further £2.4billion.

The levy applies an effective headline rate of 78 per cent on oil and gas profits, meaning Treasury receipts climb in tandem with wholesale prices.

LATEST DEVELOPMENTS

Households hit hardest by surging energy bills could be helped by local councils

Kemi Badenoch warns Keir Starmer's attitude to energy companies has left Labour short on influence

Ed Miliband is misleading the public on North Sea gas - Kwaku Boakye-Adjei

Power generators face additional excess profit levies, introduced following Russia's invasion of Ukraine, which could yield hundreds of millions more due to elevated wholesale electricity costs.

The RAC estimates VAT on petrol purchases would deliver approximately £2billion in additional revenue. The TaxPayers' Alliance accused the government of "cashing in on higher energy prices while taxpayers are squeezed".

Howard Cox, who founded FairFuelUK, called on ministers to reduce fuel duty to ease the burden on drivers. Steve Gooding, director of the RAC Foundation, described the situation as a significant "war windfall" for the Government.

Ms Gooding said: "For all the focus on whether retailers are overcharging for fuel, it is worth remembering that roughly half of what drivers pay at the pump goes to the exchequer in a mix of fuel duty and VAT."

Pressure is mounting on Ms Reeves to redirect the gains towards struggling households. Government sources cautioned that any additional revenue could be outweighed by rising borrowing costs, which have climbed sharply due to the conflict.

Prime Minister Keir Starmer convened energy, shipping and banking executives at Downing Street yesterday ahead of today's Cobra meeting.

Mr Starmer told attendees that while this was not "our war", protecting British citizens remained the government's duty, adding: "I think probably uppermost in their minds at the moment is energy bills, petrol and also food prices."

The Treasury stated that higher VAT receipts from fuel would likely be offset by reduced VAT from other purchases, acknowledging public anxiety about the cost of living impact while pledging to "support families and protect public finances".