Rachel Reeves, the UK’s Chancellor of the Exchequer, has delivered the first Labour Party Budget Statement for 14 years, and confirmed the anticipated rise in oil and gas industry headline tax rate.
The headline tax rate will rise in a few days to 78%, among the highest in the world.
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She also extended the tax’s application by an additional year, running until 31 March 2030.
In September, the UK Offshore Energies Association (OEUK), the trade association supporting companies in the offshore power generation industry, published a letter highlighting the risks of Labour’s ‘windfall tax’ for the industry.
The letter, signed by more than 40 companies, explained that the windfall tax will put thousands of jobs at risk, affect companies that are critical to the UK Government’s industrial strategy and hinder continued progress toward net-zero targets.
Tom Bradley, Director at Cavendish Consulting, responding to the budget, said “we’ve already seen a number of global companies pulling investment in the North Sea in response to the previous tax hike.”
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By GlobalDataHe added that as reserves dwindle, the costs of extraction and refinement increase “and there is a risk that additional tax burden simply makes the sector uneconomical in the UK.”
According to Offshore Technology’s parent company, GlobalData, the oil and gas industry employs an estimated 150,000–200,000 workers in the UK, mostly along the North Sea coast.
A collaboration between the new government and the oil and gas industry is essential, argued the OEUK, for the government to realise the benefits of a homegrown energy transition that supports jobs, skills and companies in the UK.
Reeves said on Wednesday the changes will make sure the “oil and gas industry can protect jobs and support our energy security”.
Keir Starmer’s party came to power in a huge landslide victory, and promised to toughen the Energy Profits Levy (EPL), also known as the windfall tax, which was first introduced in 2022 following a huge rise in crude oil prices.
However, prices have largely normalised since Russia’s invasion of Ukraine, leading many industry players to call for an end to the tax.
The tax and allowance changes are aimed at discouraging new exploration within the UK’s oil and gas fields but are also likely to gradually reduce returns for companies operating in the sector, many of whom have been there for years and have invested hundreds of millions of pounds.
The Chancellor also confirmed £2bn for 11 green hydrogen projects, which she said would be “amongst the first commercial-scale projects anywhere in the world” and would total 125MW of capacity.
The projects have been on hold for almost a year while awaiting confirmation of the funding.
Bradley added that the hydrogen sector “will no doubt be welcoming this commitment having suffered a blow earlier in the year with the cancellation of ‘hydrogen town’ trials and a lack of commitment from either of the main parties to a future role for hydrogen in the gas network.”
“Moves to further cement economic models for the production and usage of hydrogen will go some way to alleviating fears and to bringing some much-needed confidence and investment to the sector,” he added.
The government also announced a new, multi-year carbon capture and storage investment, as well as £3.4bn to increase energy efficiency in homes.
However, investment and development details for Great British Energy, a body to be “owned by the British people and deliver power back to the British people”, are yet to be announced.
But the government expects to allocate £100bn in capital spending on the project over the next five years.
Before the election, Labour said the body will partner with industry and trade unions to deliver clean power by co-investing in leading technologies, providing more than £8bn over the next parliament.
“It remains to be seen after this budget whether or not Reeves will be the UK’s first ‘Green Chancellor’. Overall, there was far less in this budget than might have been expected for a Government committed to making the UK a ‘green energy superpower’,” said Bradley.
