THE Labour government’s decision to raise the windfall tax could lead to a £13 billion economic catastrophe for the UK, jeopardising the livelihoods of 35,000 workers in the industry, according to a new report.
Offshore Energies UK has issued a grave warning to Finance Minister Rachel Reeves before the upcoming Budget, forecasting that over 60% of planned North Sea production could be cancelled if the Chancellor eliminates investment allowances.
This scenario would result in a significant drop in investment in the sector, leading to a financial loss of £13 billion to the UK’s economy from 2025 to 2029, and potentially putting 35,000 jobs in jeopardy.
According to the government’s strategy, the Energy Profits Levy is set to increase from 75% to 78% starting November 1st. Additionally, the government has plans to prolong the levy’s duration until 2030 and that it will “tighten” investment allowances, which currently enable companies to lower their tax liabilities by investing in projects like renewable energy in the North Sea.
OEUK said the policy changes would “undermine” the industry’s ability to “support the government’s overarching goal of driving economic growth”.
The analysis by the industry group suggests:
The anticipated tax revenue from oil and gas companies would see a short-term spike of £2 billion but would then lead to a £12 billion drop in tax receipts.
There would be a swift decrease in investment from £14 billion under the existing tax framework to just £2 billion by 2029.
Around 35,000 jobs could be lost in 2029 due to the cancellation of projects.
“This is a government that has made economic growth its main priority and yet our analysis shows that its policy will ultimately reduce this sector’s contribution to the UK economy,” said David Whitehouse, OEUK chief executive.
“Time is running out to mitigate damage that has already been done and to avoid further escalation,” he added.
“The prime minister promised to manage the North Sea in a manner that does not jeopardise jobs. We now need an honest conversation on how we can do this and need government to work with the sector at pace.”
Russell Borthwick, chief executive at Aberdeen & Grampian Chamber of Commerce, said: “Since its introduction, this ill-thought-through tax raid has achieved little other than to shatter confidence in the sector, cost jobs, and threaten our ability to deliver energy transition.
“And rather than unlock investment, the new UK Government wants to make it worse. If the Chancellor proceeds as planned, tens of thousands of jobs are at risk and we will witness redundancies on a scale not seen in this country since the pit closures of the 1980s.
“We urge the UK Government to instead pursue a policy which supports the industry and a managed transition towards clean energy.”
A spokesperson for the Treasury said: “We are committed to maintaining a constructive dialogue with the oil and gas sector to finalise changes to strengthen the windfall tax, ensuring a phased and responsible transition for the North Sea.
“Our plans for a new National Wealth Fund and Great British Energy will create thousands of new jobs in the industries of the future.”