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Labour windfall tax will cost economy £13bn, trade body warns

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3 months ago

September 2, 2024

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Labour windfall tax will cost economy £13bn, trade body warns

Labour has been accused of “abandoning” Scotland’s North Sea oil and gas industry after a trade body warned the party’s windfall tax will cost the UK’s economy £13bn.

According to figures published by Offshore Energies UK (OEUK), the UK Government’s Energy Profits Levy (EPL) would see investment in UK projects by oil and gas producers fall from an expected £14.1bn to just £2.3bn between 2025 and 2029.

The report said while expected tax take from the sector would increase in the short term, a rapid fall in production triggered by the loss of investment would result in a £12bn decrease in tax receipts.

The Scottish Conservatives claimed the figures showed how the windfall tax would “decimate” the industry and put tens of thousands of jobs at risk.

It also comes after the UK Government decided not to challenge legal attempts to stop drilling going ahead at the Rosebank oil field.

And while Labour has not revoked licenses for existing oil fields, it has banned the granting of licences for any new fields.

During the General Election campaign, Prime Minister Keir Starmer said he would increase and extend the windfall tax first introduced by the Tories.

Under the UK Government’s proposed changes, the EPL would rise to 38% from November 1.

The OEUK claims this would push the headline rate on upstream oil and gas activities up to 78%.

David Whitehouse, OEUK chief executive, said: “The Prime Minister has said that the budget will be painful. This industry recognises that difficult decisions will need to be made.

“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.

“This paper shows that proposals to go further will trigger an accelerated decline of domestic production, and a corresponding reduction in taxes paid, jobs supported and wider economic value generated.

Keir Starmer wants to increase tax on energy firms from 75% to 78%. STV News

“With an industrial strategy built in partnership with Government, the UK can leverage the strengths of its offshore energy industry, put homegrown innovation and technology at the heart of its net zero ambitions, and ensure the UK is globally attractive for energy investment.

“For more than two years UK oil and gas operators have paid three times the rate of corporation tax of any other sector in the economy.”

The report warns that projects being cancelled or deferred as a result of the increase would place 35,000 jobs at risk over the period.

It also says the loss of economic value in the sector would impact UK supply chain companies, and that the country would risk losing capability and infrastructure to other parts of the world.

Whitehouse called on the UK Government to work with the sector to find a way to manage offshore energy while protecting jobs.

“Time is running out to mitigate damage that has already been done and to avoid further escalation,” he said.

“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.”

Offshore Energies UK is a trade body for the UK’s offshore energies industry, and represents more than 400 organisations with an interest in the sector.

Douglas Lumsden warned Labour against imposing another windfall tax on energy firms. Scottish Parliament

Scottish Conservative energy spokesman Douglas Lumsden said: “This report sends a clear message that Labour’s abandonment of the North Sea oil and gas industry will decimate both our local economy and our energy security.

“Labour’s shortsighted and unfounded sanctions of increasing the windfall tax, ending the investment allowance and opposing all new oil and gas licences means tens of thousands of skilled jobs are now hanging in the balance.

“OEUK is absolutely right to hit out at Labour’s economically and environmentally illiterate proposals, which will result in companies walking away from Scotland and taking their investments elsewhere.”

A Treasury spokesperson 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 unlock investment and create thousands of new jobs in the industries of the future.”