OEUK: windfall tax increase would put energy security in jeopardy

(WO) — The Press Association has reported a speech by Rachel Reeves at the Fabian Society Conference, saying that a Labour government would extend the windfall tax on UK North Sea operators from 75% to 78%, “closing the fossil fuel investment loophole, and taxing oil and gas giants at the same rate at which they’re taxed in Norway”.

In response, Offshore Eneries UK (OEUK) said the impact of such changes would be disastrous for the UK’s energy supplies and future energy security. It also warned that the comparison with Norway’s tax regime was inaccurate and misleading. OEUK represents the UK’s offshore industry which covers gas, oil, and offshore wind.

Although Norway imposes headline tax rates like those proposed by Reeves on profits from oil and gas, it also gives its offshore industry investment allowances and other tax concessions far more generous than would be the case in the UK. This means that Reeves’ proposals would actually see the UK industry facing significantly higher taxes than their Norwegian counterparts.

Tax hikes would make many UK projects economically unviable, leading to a rapid decline in output. Oil and gas production would decline 50% by 2023 if investments into new fields were to stop, according to OEUK. Outside imports would increase, forcing the UK to become rely on other country’s for energy resources.  

OEUK’s response to Labour Party plans

OEUK’s external relations director Jenny Stanning already criticized suggestions that the UK should divest in oil and gas activity, saying that politicians should “choose words carefully.”

“About 24 million homes rely on gas boilers for heat and we get 42% of our electricity from gas. We also have 32 million vehicles running on petrol and diesel. Gas-fired power stations make 42% of our electricity too. So, our homes, businesses, schools, and cars all need gas and oil.

“The companies providing those fuels are the same companies that are investing in the transition. They are already building the offshore wind farms, the CO2 capture and storage systems and the hydrogen production facilities that will power our country in future. Labour has acknowledged that it can only deliver this in partnership with business and our members stand ready to work together to achieve this.

“We have an obligation to warn all policymakers that, if you undermine those companies now, and send the sector’s 200,000 skilled workers into other industries, you will damage both the nation’s current energy security and our hopes of a rapid transition to low-carbon energies.

Clarification from the Labour Party

OEUK has also been in contact with the Labour Party seeking clarification of its plans should it win power. The party issued a statement to OEUK as follows:

“The next Labour government will make the UK a clean energy superpower … As part of the plan, Labour will manage existing oil and gas wells sustainably over the coming decades, recognizing the jobs and local economic value they bring. The transition to net zero is an opportunity for industry and a process. We won’t turn off the taps, but part of our plan is to stop licenses for new oil and gas fields.”