Catherine McBride

1. ‘Margaret Thatcher “sold off” or “gave away” the UK’s oil and gas

Variations of this claim have been repeated on social media and in TV and Radio interviews since the conflict in the Persian Gulf started. It is wrong on many levels:

Firstly, neither Thatcher nor any other UK government ‘sold off’ the UK’s oil and gas resources. In 2002, the Labour government under Tony Blair abolished royalties on the volume of oil and gas extracted and replaced them with taxes on profits. The government also issues and charges for licences to explore and develop the UK’s territorial waters and continental shelf for oil and gas, as well as build pipelines to the UK’s coast, etc.

The UK certainly does not knowingly give away the UK’s oil and gas, either. The taxes on oil and gas company profits are over three times those of other UK companies, and oil and gas companies have fewer allowances than other companies. Should a company be lucky enough to find oil and/or gas, they have to pay a Ringfenced corporation tax of 30% and an additional Supplementary Charge of 10%, and finally a Windfall Tax (the Energy Profits Levy) of 38%, taking their total tax rate to 78%.

The details of these taxes are below: they come from my recent paper for the Great British Business Council, entitled Premeditated Industrial Destruction? How the UK destroyed its industry and a plan to reverse this.

Ring-fenced corporation tax (RFCT) of 30%

These taxes are charged on ring-fenced profits from oil and gas produced in the UK and the UK Continental Shelf. Ring-fenced profits are those that cannot be reduced by losses from other parts of the company. This 30% tax rate was intended to ensure the UK government received a fair share of returns from the UK’s natural resources. The standard UK corporate tax rate is currently 25%.

The Supplementary Charge (SC) of 10%

The 10% Supplementary Charge was introduced in 2016 and is also applied to ringfenced profits, but without a deduction for financing costs. However, the SC permits deductions for the Investment Allowances, Cluster Area Allowance, and Onshore Allowances. The Cluster Area allowance was introduced in the Finance Act 2015 and provides a 62.5% deduction on qualifying expenditure incurred in a designated Cluster area. So far, there is only one cluster area: the Culzean Cluster Area in the North Sea.[1] The Onshore Allowance was introduced in the Finance Act 2014 to support the development of onshore oil and gas projects and allows 75% of capital expenditure to be deducted. The Investment Allowance is currently 62.5% of investment expenditure.[2]

Energy Profits Levy (Windfall Tax)

Introduced following the Russian invasion of Ukraine as a temporary tax on the ‘Windfall profits’ of oil and gas companies. Originally set at 25% for 3 years, the EPL has been increased and extended twice and is now 38% through to 2030. The 29% investment allowance has been removed, and the decarbonisation investment allowance has been reduced to 66%. After its expiry in 2030, the windfall tax will be replaced by a permanent tax. The EPL will expire before 2030 if the 6-month average price for both oil and gas is at or below the Energy Security Investment Mechanism threshold of £71.40 per barrel of oil and £0.54 per therm for gas.

The UK Government also charges offshore licence holders an Oil and Gas Levy, whether the licence is in production or in pre-production.[3] This is paid annually to the North Sea Transition Authority (NSTA). They also charges fees for pipeline authorisations, offshore gas storage licences, CO2 storage licences, and pollution prevention and control.[4] The NSTA also charges fees for licence applications, drilling consents, pipeline works, consent to extend a licence, or to amend a work program approval.[5]

2. ‘Laffer Curve isn’t real’ – oh, yes it is!

The UK government now takes more money from North Sea oil and gas profits than the companies that do all the work and make major investments in exploration, plant, and equipment. Or at least it used to. Now, with tax rates so high and restrictions on new wells so tight, most companies operating on the UK side of the North Sea are closing down or reducing their production.

The OBR’s March estimate of revenues from all three oil and gas taxes mentioned above, was only £200 million in 2028/9 dropping to just £100 million in 2029/30.[6]

In 2023/3, before the windfall tax was introduced, the Government raised £9.9 billion in oil and gas tax revenues, and this figure does not include the many licence fees and levies listed above.

To put that into perspective: Norway collected NOK 373.1 billion in oil and gas taxes in 2025, equivalent to around £28.8 billion. If we include Norway’s States Direct Financial Interest (SDFI) income, environment fees, and Equinor dividends, the total Net Norwegian government petroleum cash flow in 2025 was NOK 655.8 billion (£50.7 billion).[7] Why the disparity? Norway encourages more production, so it makes more money from it. I discuss this in more detail in point 5.

3. “If we produce more oil and gas, it will just be exported.”

I have explained before why this is nonsense for North Sea gas: the UK does not have the facilities to convert natural gas to a liquid and transport it to countries not connected to the UK by pipeline. Converting gas to LNG requires specialist equipment, and is a very expensive process, so it is only financially viable if the natural gas is relatively cheap, for example, US, Qatari or Australian NW shelf gas. Unless the UK increases its gas production as dramatically as the US did after its shale gas revolution, thus lowering US natural gas prices by a quarter, it is unlikely that the UK will ever be a commercially viable place to spend about $6 billion to build an LNG plant, as Norway and Russia have done. Building an LNG plant would have been an exceptionally risky investment under the current and previous governments, who did everything possible to discourage UK oil and gas production.

But you may ask: What about oil? It can be easily transported. This is true. North Sea crude is sold on the open market and typically goes to UK, Dutch, German and Scandinavian refineries. Refineries purchase different grades of oil based on price, availability, transport cost, product demand, and their refinery configuration (as discussed here). But that doesn’t mean that once the crude oil reaches a Dutch, German, or Scandinavian refinery, the UK market will never see it again. The UK remains a major market for European refined oil products. This explains why UK trade with the Netherlands and Sweden appears disproportionately high, given their population sizes: we export crude to them and then import refined products, such as diesel, back.

The UK now has only four refineries, all of which have deepwater ports and import various grades of crude from international oil fields. It is strange that so many commentators seem to think that the UK should restrict exports of its North Sea production but expect UK refineries to be able to import as many different grades of crude as they need from other countries.

The only European refinery that primarily used UK North Sea Crude was the recently closed Grangemouth refinery because the Forties pipeline system brings crude from dozens of UK North Sea fields to the Kinneil Terminal, which is part of the Grangemouth complex. Although Grangemouth also imported international crude oil via the Finnart Ocean Terminal, which is connected to Grangemouth by a pipeline across Scotland.

North Sea crudes tend to be light, sweet crudes that are more suited to petrol, diesel, jet fuel, and naphtha production. The UK’s four remaining refineries were all built mainly between 1950 and 1970, when most UK vehicles ran on petrol. Now, diesel demand is higher as car owners were encouraged to switch to diesel in the early 2000s to lower CO2 emissions, and larger trucks, machinery, and farm equipment mostly run on diesel. However, most EU refineries are configured to produce more diesel, as there are more diesel cars on the continent, so demand for diesel is higher.

Exporting crude and importing refined products is no different from any other type of trade. And it is not a valid excuse for preventing companies from excavating UK resources; it may be exported, but so what? UK refineries also import other types of crude oil.

4. Imported LNG is interchangeable with natural gas - oh no, it isn’t!

Before the recent conflict in the Persian Gulf, imported US LNG could be landed in the UK for about the same price as North Sea natural gas, so it is a mistake to suggest that the UK is importing ‘more expensive’ LNG. However, Norwegian gas and LNG imports impose a significant opportunity cost, as the UK economy misses out on tax revenues, high-paying jobs, and a lower trade deficit.

Greenies opposed to North Sea gas production should also note that LNG wastes a lot of energy. Using UK North Sea natural gas is better for the global environment, although it is counted as a UK UNFCCC emission. Natural gas requires less energy to produce and provides the UK with a secure supply of gas for domestic heating, electricity generation, and as an input for fertiliser and chemical production. Again, I quote from the GBBC paper:

‘Besides the obvious financial benefits of using natural gas from the North Sea: increased tax revenue, increased regional employment and an improved Balance of Payments, there is also an energy bonus. The highest Energy Return on Energy Invested (ERoEI) is achieved from a conventional gas field. The ERoEI is between 20:1 and 28:1. That means we get over 20 times as much energy out of a natural gas field as we put in to extract the gas. However, imported LNG has a dramatically lower ERoEI. The liquefaction process consumes about 10% of the gas’s energy, and the shipping fuel and regasification further reduce the energy returned. Imported LNG has an ERoEI of less than 10:1. Importing LNG from the US only makes financial sense because fracking in the US has lowered the US gas prices so much that there is still a financial gain after converting it to LNG and transporting it across the Atlantic.’

5. ‘Norway mines its own resources’ - oh no, they don’t!

Some media commentators, MPs and environmentalists seem to believe that Norway is like some communist countries with full state control of its oil and gas operations. That is not how the Norwegian system works. There are no besuited Norwegian public servants working on oil rigs in the North Sea. The Norwegian government, like all other non-communist countries, sells exploration and production licences to commercial oil and gas companies and then taxes their profits after allowing them to expense their exploration and development costs (unlike the UK).

Norway collected 7 times as much in taxes from oil and gas companies in 2025, because it encourages oil and gas production. And I am not including the income Norway receives from the State Direct Financial Interest (SDFI), which holds direct stakes in more than 40 producing fields, accounting for about 30% of Norway’s total oil and gas reserves. The SDFI does not automatically take a stake in all new fields; instead, new licences are awarded through competitive licensing rounds and awarded by the Ministry of Energy. Consequently, many licences are owned and operated entirely by private companies. There are 24 different oil and gas companies operating on the Norwegian continental shelf, including Aker BP, Var Energi, Shell, TotalEnergies, and ConocoPhillips.

Although Equinor started life as the state-owned Statoil, it never had exclusive rights over Norway’s oil and gas resources. Norway has always used a licensing system for companies operating in its waters, as almost all other countries do. Equinor was partially privatised in 2002 and listed on the Oslo and New York stock exchanges. The Norwegian government still owns two-thirds of Equinor’s shares and collects dividends as well as taxes. Once upon a time, there was a law that Statoil had to own 50% of all licences in Norwegian waters, but that rule was dropped by 1985. Equinor is now a commercial company and must bid for Norwegian licences along with other oil and gas companies. It also operates in 36 countries, including on the UK side of the North Sea.

6. ‘Renewable energy can replace oil and gas.’ Oh no, it can’t!

It is hard to fathom how this got past the FT’s eagle-eyed editors, but it did. According to the FT:
‘More than 65 leading UK scientists have warned against new oil and gas drilling in the North Sea, urging the government instead to prioritise renewable energy as a more cost-effective response to the energy crisis.’

At the time of writing, no amount of ‘renewable energy’ can replace jet-fuel, petrol, diesel, bunker fuel, or heating oils. Nor can renewable energy produce the industrial heat needed to produce cement, ceramics, glass, steel, or aluminium. Nor can renewable energy replace the hydrocarbons needed to produce chemical feedstocks for plastics, fertilisers, and pharmaceuticals. Nor can renewable energy create bitumen for asphalt, carbon fibres, or armaments and ammunition. Yes, some products can be recycled, possibly using renewable energy, but we still need the original materials before they can be recycled. Even UK renewable electricity needs a backup plan, and this is also provided by gas.

If you want more information about the uses of oil and gas and why the UK needs a secure supply of both, read the GBBC’s new paper: Premeditated Industrial Destruction – How the UK destroyed its industry and a plan to reverse it.

Catherine McBride OBE 

Catherine McBride is an economist specialising in trade. Catherine received her OBE for her work explaining economics and trade to both politicians and the public. Before working in trade policy, she was a derivatives trader covering global commodity markets from London. Catherine has written several think tank papers on economics, trade, and taxes; writes a Substack, Catherine McBride’s Substack; writes for the websites Briefings for Britain, Global Britain, and The Critic; and regularly appears on TV, radio, and podcasts. 

Original article   l   KeyFacts Energy: Commentary