Labour’s tax raid on North Sea to ‘hit jobs and revenue’

Starmer’s proposals to expand windfall levies would crush investment, warns oil and gas industry

LABOUR’S proposed North Sea tax increases would drive out investment, destroy up to 100,000 jobs and cost the Treasury £20bn in lost revenues, energy experts have warned.

Analysis by investment bank Stifel suggests Sir Keir Starmer’s plans to increase and extend windfall taxes on the industry will cost the country far more than they raise.

A separate report by Welligence, an oil and gas analyst, said key UK offshore operators such as Harbour Energy, the UK’S largest oil and gas producer, and Totalenergies had already cut back investment and others were now likely to follow.

The warnings come after Labour last week scrapped a pledge to invest £28bn a year in clean energy and launched its Green Prosperity Plan. Under the new proposals, the party hopes to raise an extra £11bn from Britain’s oil and gas industry by increasing and extending the windfall tax, with the funds invested in “clean power to cut bills for families”.

However, Chris Wheaton, an oil and gas analyst with Stifel, warned: “We estimate the UK will lose £20bn in tax revenues, with maybe 100,000 jobs at risk, both directly and indirectly employed, and a £40bn reduction in investment between now and 2030.”

Labour’s proposals for the UK’S oil and gas industry generated little discussion because the media and political focus was on the cancellation of its £28bn green investment pledge.

Sir Keir has proposed adding 3pc to existing offshore production taxes, slashing investment allowances, banning new drilling licences and extending the windfall tax beyond its current cut-off date of 2028.

Labour said: “Together, these changes would raise £10.8bn over the next five years from 2024-25 to help fund the Green Prosperity Plan.”

However, Mr Wheaton said the overall economic impact would be negative. He warned: “The uncertainty created by threatening new windfall taxes is as bad as the tax itself. The tax is already forcing cancellation of investments. For example Totalenergies have cancelled drilling plans at the Elgin and Franklin fields [in the North Sea], and Apache has cancelled investments at its Beryl fields.

“Already I see companies not planning beyond 2025 for the UK because they have no idea what the tax structure or rate might be.

“That means essential bits of kit like drilling rigs are leaving the UK. Overall it means faster declines in production, lower energy security and earlier decommissioning, all of which reduces tax take payable to the government.”

The head of one leading North Sea operator said: “Our investors will run for the hills if these measures come in. Labour wants to add 3pc to the existing taxes, so our profits would be taxed at 78pc. Any investor looking at that level of tax and Labour’s other planned measures would just decide to invest the money abroad instead.”

The UK’S offshore industry employs about 200,000 people and provides nearly half of the nation’s oil and gas.

Welligence, reported in Energy Voice, said: “This latest announcement from Labour seems to serve only one purpose – to further destabilise and erode confidence in a region which is already struggling.

“Should Labour win the next general election it may well herald the end of oil and gas investment in the North Sea, but even if it does not, this latest announcement does the sector no favours.”

Robin Allan, the chairman of Brindex, which represents the many smaller companies producing oil and gas in UK waters, said: “The Labour Party is creating a hostile environment for offshore investment. Its policy announcements are also confusing – it says oil and gas will be needed beyond 2050, while actively undermining investment in the sector with hostile announcements.”

David Whitehouse, chief executive of Offshore Energies UK, the industry trade body, said Labour’s plans would destroy jobs and damage the industry.

He said: “I listened carefully to Rachel Reeves, the shadow chancellor, promise that Labour will work in partnership with UK businesses … but that’s not what we’ve had from Labour.”

Labour was contacted for comment.