Rachel Reeves floats energy tax U-turn on North Sea oil ahead of Budget

This would effectively reverse a decision made in last year's fiscal statement to extend it by one year, until March 2030, The Financial Times reports.

Introduced by former Conservative Chancellor Jeremy Hunt, the Energy Profits Levy has targeted oil and gas firms on the basis that these companies were benefits from profits far beyond normal levels due to the price chock resulting from Russia's invasion of Ukraine.

Initially, the levy added a 25 per cent charge on top of the existing tax regime but has since been increased in stages to 38 per cent.

Critics note that this means the overall effective tax rate on North Sea production now sits at roughly 78 per cent.

While it was originally billed as temporary, the levy has been extended to run until March 2030, with a mechanism allowing it to fall away earlier if oil and gas prices drop back to more historically “normal” levels.

The tax also contains investment allowances intended to encourage firms to continue investing in UK extraction and decarbonisation projects, though industry groups argue that the frequent changes and extensions have undermined confidence and contributed to uncertainty around long-term investment plans.

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As well as this, analysts have warned the hiked tax costs for the oil and gas industry are leading to higher energy bills for Britons as companies look for ways to ease the cost.

The Conservative Party under Kemi Badenoch has pledged to get rid of the tax, despite having introduced the levy when last in power.

Last month, Ms Badenoch said: "The Energy Profits Levy the “windfall tax” is actually leading to less tax revenue for the treasury at a time when the Chancellor is trying to take every penny she can get her hands on, that only means one thing: more tax rises landing on ordinary families.

"When the Energy Profits Levy was introduced, oil prices were near record highs at the same time bills were rocketing. That moment has long gone.

"There is no windfall left, and yet Labour is still taxing. You may ask why should we believe you when Conservatives introduced this levy?

"The answer is that those of us who always opposed the levy are now in charge. And for those who didn’t, when the facts change, they change their minds.

"Almost every other European country has dropped their levy, but Labour wants ours to run until 2030. If that happens, there won’t be an industry left to tax."