Last reviewed: May 2026
TL;DR- Chancellor Reeves is closing a North Sea oil company tax loophole.
- Revenue from the change will fund a cost of living support package.
- The Ofgem energy price cap fell from April 2026, reducing average bills.
- UK retail sales fell 0.6% in April 2026 as consumer spending slowed.
- The measure forms part of a broader household support announcement.
Chancellor Rachel Reeves has announced the closure of a tax relief loophole used by North Sea oil and gas companies, with the revenue directed toward a cost of living support package for UK households. The move comes as official data showed UK retail sales fell in April 2026 and petrol purchases recorded their largest monthly drop in six years.
What the Oil Tax Change Involves
The measure targets a specific relief within the Energy Profits Levy, the temporary windfall tax on North Sea oil and gas producers introduced in 2022. The relief in question allowed companies to offset a portion of decommissioning costs against their levy liability in ways that the Treasury concluded reduced the effective tax rate below the intended level. Closing the loophole is expected to generate additional revenue that HM Treasury has committed to directing toward household support measures.
The Energy Profits Levy is separate from the main corporation tax regime and applies on top of the standard 30% ring-fence corporation tax and 10% supplementary charge already paid by North Sea producers. The levy rate stands at 38%, giving a combined headline tax rate of 78% on North Sea profits.
Cost of Living Context
The announcement follows ONS data showing UK retail sales volumes fell 0.6% in April 2026, with petrol purchases recording their sharpest monthly decline since 2020. Analysts attributed part of the fall to the timing of the Easter holidays and unusually cold weather in March pulling forward some spending, but the underlying trend points to continued pressure on household budgets.
The Ofgem energy price cap fell by approximately 7% from 1 April 2026 for the second quarter, reducing the annual average household energy bill to around £1,849 for a typical dual-fuel customer paying by direct debit. The reduction contributed to the fall in CPI inflation to 2.8% in April 2026.
What Households Can Expect
HM Treasury has not yet published full details of how the revenue from the oil tax change will be distributed. Previous cost of living support schemes have included targeted payments to households on means-tested benefits, pensioners and those with disabilities. The Household Support Fund, administered through local authorities in England, has been used in previous rounds to help those not captured by direct payment schemes.
Households seeking to reduce their energy costs independently should note that the Ofgem price cap applies to unit rates and the standing charge, not to the total bill. Actual spending depends on consumption. Switching to a fixed tariff may offer protection against future cap increases, though fixed deals in May 2026 were priced above the current cap level.
Frequently Asked Questions
What is the Energy Profits Levy?
The Energy Profits Levy is a temporary additional tax on the profits of oil and gas companies operating in the UK Continental Shelf. It was introduced in May 2022 in response to elevated energy company profits following the rise in global commodity prices. The rate has been adjusted several times since introduction.
How does the Ofgem price cap work?
The Ofgem price cap limits the unit rate and standing charge that energy suppliers can charge customers on default tariffs. It does not cap the total bill - households that use more energy will pay more even if the capped unit rate is unchanged. Ofgem reviews and updates the cap every quarter based on wholesale energy costs.
Where can I check if I qualify for cost of living support?
Eligibility for cost of living payments is determined by DWP and HMRC based on benefit entitlement and tax credit status. The gov.uk cost of living support page lists current and upcoming payments and eligibility criteria. Entitlement is assessed automatically for most recipients - no application is required.
How We Verified This
This article draws on HM Treasury announcements, ONS retail sales data for April 2026, Ofgem price cap publications and the Energy Profits Levy technical documentation on gov.uk. All figures verified in May 2026.
