The approach for oil and gas is deliberately restrictive, while the green agenda is supported through targeted financial incentives and infrastructure spending. The UK’s 2025 Budget implements starkly different financial strategies for the established fossil fuel industry versus the growing renewables and mining sectors. The approach for oil and gas is deliberately restrictive, while the green agenda is supported through targeted financial incentives and infrastructure spending.
The Oil and Gas Sector: A Difficult Fiscal Landscape
- Elevated Taxation: The effective tax rate for North Sea operators stands at a high 78% due to the extended Energy Profits Levy (EPL). This rate was increased and its duration prolonged, creating a punitive fiscal environment designed to extract maximum revenue from a sunset industry.
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Winding Down Production: The UK government’s stance is a managed decline. The ban on new offshore exploration licenses is a clear signal that the government is not encouraging the sector’s expansion, which naturally curbs future investment interest and future production volumes.
- Investment Barriers: Industry bodies consistently argue that this tax regime makes the UK globally uncompetitive, deterring essential capital investment required to maintain existing infrastructure and extract remaining reserves efficiently. The focus is shifting away from new large-scale projects towards managing existing field operations and planning for decommissioning.
The Mining Sector: A Mixed Fiscal Strategy
The corporate mining sector faces a more nuanced set of financial signals:
- Targeted Advantages: There are specific positive outcomes, such as the retention of the Quarry Exemption within Landfill Tax reforms. This prevents significant new costs related to quarry restoration from being levied on operators.
- Increased Costs: Conversely, large operations, specifically major quarries, cement plants, and asphalt plants, will face higher business rates. This represents an increased overhead cost that must be absorbed or passed on.
- Strategic Investment Potential: Opportunities for miners are linked to the broader national strategy for critical minerals. Government funds are being directed into regional hubs, potentially offering supply chain opportunities and investment incentives for businesses involved in extracting key materials needed for modern technology and the energy transition.
Renewables and Green Programs: A Clear Priority
The government’s primary focus is accelerating the shift to a green economy, with financial strategies aimed at boosting renewables and managing the consumer cost of the transition:
- Shifting the Financial Burden: A notable policy decision is moving the cost of the Renewables Obligation from household utility bills onto general taxation. This is a direct financial maneuver to make electricity prices more palatable for consumers while still funding renewable energy generation.
- Infrastructure and Investment: Funds and policy support are being directed towards grid upgrades, critical minerals supply chains, nuclear power (which is now eligible for green financing), hydrogen projects, and carbon capture technology. This framework is designed to derisk private investment in these nascent industries.
- Managing the EV Transition: While the government is introducing a mileage-based tax for electric vehicles to replace lost fuel duties in the future, it is also providing continued immediate tax allowances for purchasing EVs and investing in the charging infrastructure necessary to support mass adoption.
Mark Lumsdon-Taylor is Executive Development and Sustainability Lead at MHA, the accountancy and advisory firm. Working across multiple sectors, he is a chartered accountant with specialist sustainability and governance expertise, supporting organisations of all sizes with strategy development, ESG integration and performance improvement. MHA operates across more than thirty locations, including offices in Aberdeen and Edinburgh.
For more information visit, https://www.mha.co.uk/
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