Key Points
- Rachel Reeves, the UK Chancellor, announced plans to close a tax loophole used by some oil and gas multinationals operating through foreign branches.
- The reform is aimed at stopping firms from reducing UK corporation tax by offsetting losses from overseas branches against UK energy trading profits.
- The government said the move could raise hundreds of millions of pounds each year.
- The policy is being linked to wider cost-of-living support measures for households and businesses.
- Companies named in reporting include BP and Shell, which were cited as examples of major oil and gas groups affected by the change.
- Campaigners welcomed the move, while critics warned Britain is already carrying a heavy tax burden on North Sea operators during an energy crisis.
- Reporting said the reform targets the “foreign branches exemption”, a structure that allowed some firms to pay little or no corporation tax on UK energy trading profits.
UK moves to close oil and gas tax loophole as pressure mounts over energy crisis
The UK government has announced plans to shut a tax arrangement that allowed some oil and gas multinationals to reduce their British tax bills by using losses from foreign branches, in a move ministers say will raise hundreds of millions of pounds a year and help fund cost-of-living support.
As reported by the Alliance News piece carried by Morningstar and LSE, Rachel Reeves said the government would end a practice used by some oil and gas groups operating overseas through foreign branches, including firms such as BP and Shell, to lower their UK corporation tax liabilities. In her remarks, Reeves said some groups “have structured their tax affairs in a way which ensures they pay little or no corporation tax on their UK energy trading profits”.
Today we are putting an end to that practice, she said, according to the reports. The government said the reforms are expected to raise “hundreds of millions of pounds a year” and will help fund measures announced to support households and businesses facing pressure from the cost of living.
What did Rachel Reeves announce?
Reeves used the announcement to frame the change as part of a broader package of support, with the tax reform presented as a way to ensure profits from the sector contribute more directly to public finances. Reports said the measure targets the foreign branches exemption, which had enabled companies to offset overseas losses against taxable UK profits.
According to OilPrice, Reeves told Parliament: “Today we’re putting an end to that practice.” The same report said the Treasury believes the reform will produce additional revenue annually, with the proceeds intended for consumer-friendly initiatives. RTE also reported that Reeves said the changes were designed to help finance cost-of-living measures announced during the week.
Which companies are affected?
The reporting specifically named BP and Shell as examples of large oil and gas companies that could be affected by the new rules. The underlying concern, as described in the reports, is that foreign branch structures enabled certain multinationals to pay very little, or even no, corporation tax on UK energy trading income.
That said, the change is not presented in the reports as a measure directed only at those two companies. Instead, it is described as a wider rule change applying to firms using the same tax structure.
Why now?
The timing comes as the UK continues to face an energy and cost-of-living squeeze. OilPrice said the government is trying to balance its response to consumer pressure with a market in which Britain already imposes one of the heaviest tax burdens on oil and gas producers in the developed world.
The same report said North Sea operators can face total tax rates of up to 78% when prices rise above government thresholds. It also argued that the government is making a delicate choice at a time when energy security remains a concern and fuel costs have been pushed higher by conflict in the Middle East and related disruptions.
How much money could it raise?
The government said the change should raise hundreds of millions of pounds each year. That money is expected to help pay for the support package Reeves set out alongside the announcement.
Although the reports do not give an exact official forecast in pounds and pence for every year, they consistently describe the expected yield as substantial enough to make a material contribution to public spending plans. In the Alliance News coverage, Reeves said the reforms would “fund the package of measures set out today”.
How have campaigners reacted?
Campaigners welcomed the decision, with Greenpeace UK among those quoted in the reporting. Rudy Schulkind, political campaigner at Greenpeace UK, said it was “already indefensible” that companies like Shell were “reaping eyewatering profits off the back of the energy crisis while millions face soaring bills and growing climate chaos”.
That reaction reflects a wider argument from campaigners that fossil fuel firms should contribute more during periods of high consumer bills and strong sector profits. The New Economics Foundation, in earlier analysis, argued that loopholes and reliefs in the oil and gas tax system can significantly reduce the public revenue available from the sector.
What does the change mean for the sector?
For the oil and gas industry, the reform signals tighter treatment of international tax structures that had been used to reduce UK liabilities. For the government, it offers a way to raise revenue without announcing a broad rise in headline taxes.
At the same time, the debate remains politically sensitive because the UK is still trying to secure energy supply while managing household bills. OilPrice’s coverage argued that weakening incentives for domestic fossil fuel investment could be a concern if the broader tax regime becomes too restrictive.
Why is this politically significant?
The move places Reeves and the Treasury in the middle of a familiar political argument: whether large energy companies should be taxed harder during a crisis or whether higher taxes risk discouraging investment. Reporting across the sources suggests ministers see the measure as a fairness issue, while industry-focused commentary warns about the impact on energy security and investment.
The fact that the government linked the change directly to cost-of-living support strengthens the political message that the measure is meant to make wealthy multinationals contribute more during a period of strain for households. That framing has been welcomed by campaign groups and criticised by those who argue the UK already taxes the sector heavily.
What should readers watch next?
The key next step is the formal implementation of the reform and the detail of how quickly the new rules will take effect. Observers will also watch whether the Treasury provides a more precise revenue estimate and whether industry bodies respond with warnings about investment, jobs or energy security.
The wider test will be whether the new revenue meaningfully supports the household measures announced alongside it. That will determine whether the policy is seen as a one-off tax correction or the start of a tougher stance on oil and gas profits in the UK.
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