Labour's plans to hike the windfall tax will be a £13billion financial disaster for the UK and place 35,000 industry jobs at risk, according to a new report.
Offshore Energies UK has issued a stark warning to Chancellor Rachel Reeves ahead of the Budget, predicting that more than 60% of future production planned in the North Sea will be axed if she scraps investment allowances.
This would cause investment in the sector to plunge and result in a loss of £13billion to the UK economy from 2025 to 2029, putting 35,000 jobs at risk.
Under government plans, the Energy Profits Levy is due to rise from 75% to 78% from November 1st. The government has also announced it wants to extend the length of the levy until 2030, and that it will "tighten" investment allowances, which have allowed firms to reduce the amount of tax paid if they invest in projects, such as green 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 industry body's analysis estimates:
- The expected tax take from oil and gas producers would "increase in the very short term" by £2billion but then would later result in a £12billion loss in receipts.
- A "rapid decline" in investment from £14billion under the current tax policy to £2billion by 2029.
- About 35,000 jobs would be at risk in 2029 alone due to projects not going ahead.
"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.”