A recent report has urged the UK government to swiftly introduce changes to the windfall tax on oil and gas profits. According to the North Sea Transition Taskforce, which is supported by the British Chambers of Commerce, the opportunity to secure the future of the North Sea is diminishing rapidly.
The taskforce criticized the government’s plan to replace the current energy profits levy by 2030, claiming that this delay could harm investment in the sector. Currently, the tax rate on oil and gas profits stands at 78%, which the report argues is hindering investment and could ultimately reduce Treasury revenues.
To foster long-term investment in domestic gas, the taskforce advocates for a tax system that adjusts more fairly to changes in hydrocarbon prices. The government has initiated a consultation regarding post-2030 tax regulations and its commitment to halting new exploratory drilling permits.
Surveys conducted by the taskforce indicate significant unease within the industry regarding its future, with many fearing for the thousands of jobs related to fossil fuels. From 2030 onwards, companies in the oil and gas sector are expected to revert to permanent taxes, which are around 40%, but they would pay more if wholesale prices were exceptionally high.
The task force emphasized the importance of quickly agreeing on the conditions for higher taxes, stating there should be no reason to wait until 2030 to implement changes.
Philip Rycroft, chair of the task force, stressed the urgency of the situation, stating, “There is no time to hang around. Speed is of essence here — good businesses are already voting with their feet.” The report highlighted significant exits from the sector, including Apache’s decision to cease UK offshore operations and recent mergers among major players.
Scottish Labour leader Anas Sarwar backed the idea of utilizing domestic oil and gas as a means to enhance energy security and economic growth. He pointed out that existing North Sea fields could generate significant financial benefits, making it clear that if the options are between expensive imports or local resources, the answer should be to tap into domestic oil and gas.
The report also recommended forming a minister-led committee to oversee the transition from oil and gas to renewable energy sources. This committee would include members from the Treasury, Scottish government, and unions, with a request for the North Sea Transition Authority to establish a strategic plan by year’s end.
Rycroft urged the government to reassure industries that they would be supported in their drilling activities in approved areas. In response, the energy department mentioned its ongoing efforts to facilitate a smooth transition in the region, including investments in offshore wind, hydrogen projects, and carbon capture technology.
However, environmental campaigners like Uplift expressed concerns that encouraging more exploration and reducing taxes would not facilitate a fair transition for workers. They argued that allowing new drilling could undermine trust in the government’s commitment to moving away from fossil fuels, with Uplift’s deputy director, Robert Palmer, suggesting that the report reflects the industry’s continuous push for lower taxes.