Tax threat to British jobs and investment

More than £21 billion of North Sea oil and gas projects risk being scrapped by the mid-2030s if Labour increases taxes, according to analysts.

There has been an outcry in the industry since Sir Keir Starmer’s opposition party promised a ‘proper windfall tax’ on the North Sea that would hike the current rate from 75 per cent to 78 per cent.

Labour also indicated it could remove schemes that encourage investment while the windfall levy is in place. 

Companies claim they have held back spending or even called off deals because of the uncertainty. 

There are more than 30 projects worth between £200 million and £3.4 billion that would be ‘uneconomic’ – or no longer worth pursuing – if taxes rise and temporary allowances are called off, according to estimates from investment bank Stifel. This could also result in tens of thousands of job losses.

Christopher Wheaton, oil and gas manager at Stifel, said: ‘Investment in the UK North Sea is at risk because existing windfall taxes have already significantly hit the economics of investing in the UK, and further tax increases will push the industry over the edge.’ He added that by getting rid of investment allowances, which allow companies to offset tax by ploughing more money into the sector, it creates a ‘multi-billion pound paradox’ that would ultimately deprive the Treasury of cash.

‘If implemented, this would actually reduce overall tax income for the UK – by £20 billion or more – because they will kill off investment, with UK North Sea oil and gas production dropping by nearly 50 per cent by 2029 – so there will be many fewer barrels to tax,’ he said. The windfall tax on profits made in the UK was introduced by then-Chancellor Rishi Sunak in May 2022 after oil and gas prices surged in the wake of Russia’s invasion of Ukraine.

The levy was due to end at the end of 2025 but has since been extended to 2029.

The boss of Kistos Energy, Andrew Austin, said the region had already become a ‘hostile environment’ under the Conservatives and that the industry was being seen as the ‘devil incarnate’. ‘What you see is all the investment in the space is being turned off because until you have any confidence with what’s going on with the new Government, of whatever colour, no one wants to spend any money.’

A spokesman for the Department for Energy and Net Zero said: ‘No one is backing the UK’s oil and gas industry more than this government. Instead, Keir Starmer’s reckless plans to turn off the taps too soon would send 200,000 good jobs abroad and decimate communities. Industry are warning that Labour’s energy policy would leave the UK ‘uninvestable’ and would sacrifice £450 billion of investment.’ 

A Labour spokesman said: ‘Closing the loopholes in the windfall tax will allow Britain to invest in cheap homegrown British energy in the future.’

They added that once the windfall tax ends the UK can ‘make use’ of existing North Sea fields.