The UK Treasury Minister met with oil and gas leaders in Aberdeen today as the Labour government seeks to assuage concerns about its windfall tax plans.
Last month Chancellor Rachel Reeves confirmed plans to increase the tax rate of the Energy Profits Levy (EPL) and remove “unjustifiably generous” investment allowances.
The government also announced it would extend the EPL for an extra year to 2030.
It prompted a strong reaction from the North Sea firms and industry leaders, who said the policy changes would “hasten the demise” of the UK oil and gas sector and “kill” the supply chain.
Labour committed to protecting North Sea jobs
But speaking to Energy Voice following the meeting with industry leaders in Aberdeen, Treasury Minister James Murray said the government is committed to protecting jobs.
“We are committed to making sure that we manage the energy transition in a way that protects investment and jobs in the energy sector in Scotland,” Murray said.
© Mathew Perry/DCT Media“We need to, and we want to, work with oil and gas sector to make sure that we are supporting them, because they will play a crucial role in the energy mix throughout the transition.
“A lot of the opportunities of clean energy in the future will be opportunities for people who currently work in the oil and gas sector, and so there’s an interconnection between oil and gas and the renewable and clean energy of the future.”
The Ealing North MP said he held a “constructive, honest discussion” with oil and gas representatives and that Labour will continue to “listen and engage” on its EPL policy.
“I think people recognize that there are challenges and there are decisions which we are going to be taking as a government, which are difficult decisions,” Murray said.
“But I think people also recognize the opportunities of the energy transition in terms of protecting investment and jobs in Scotland, and the benefit for everyone involved of working together to get the policy detail right.”
Windfall tax meeting ‘just the beginning’
Murray said the Treasury will continue to hold “detailed meetings” with the offshore sector over the summer to develop its fiscal policies heading into the Autumn Budget.
He also acknowledged the importance of the government supporting the sector’s decarbonisation work through the EPL decarbonisation investment allowance.
Labour is aiming to “strike that balance” between the need to raise revenues to allow for investment in the energy transition and maintaining a viable offshore sector, he said.
Serica Energy, Jersey Oil and Gas and Hartshead Resources are among the North Sea firms delaying or cancelling projects due to the ongoing fiscal and political uncertainty.
© Supplied by ViaroThe potential removal of investment allowances included in the EPL has been a key concern for oil and gas firms since Labour first announced the policy in February.
The EPL incentives allow companies to claim up to 91p for every £1 spent when combined with other tax measures.
Industry experts have cited the EPL allowances as a clear motivator for some North Sea projects, including Shell’s decision to progress its Victory gas field.
But the investment incentives have also attracted considerable criticism since their introduction by the previous Conservative government, including from Murray himself.
While Labour is committed to removing the main first year investment allowance currently in place, Murray said there is a “discussion to be had” on other capital allowances.
“It’s important to have those honest discussions to make sure that we can work together to find the right way through a challenging environment and actually benefit from the opportunities which are available in terms of investment and jobs for the future,” he said.
Protecting Scottish oil and gas jobs
Treasury officials will also engage directly with offshore workers on North Sea policies, Murray said, as unions call for “meaningful discussions” with the government.
Murray committed to release full modelling on the potential impact of any policy on jobs and investment ahead of the October budget.
“The [energy] transition is the crucial framework through which to see our decisions and protecting investment and jobs in Scotland is the bottom line when we’re thinking about the detail of our policies,” Murray added.
The Minister pointed to GB Energy as an “important part” of the government’s policy approach to enabling investment in the UK energy sector, particularly in Scotland.
© Image: BIG PartnershipHe also said the Treasury will work with companies to assess the potential impact the EPL changes could have on North Sea decommissioning timelines.
“We want our policy to be led by evidence, to be practical, to be pragmatic,” Murray said.
And despite the proposed 78% EPL tax rate drawing comparisons with Norway, Murray said the government is designing its policy “with only the UK in mind”.
“I don’t think you can ever take a policy from another country and just shift it over to the UK and expect it to work well,” he said.
“You can learn from other countries, from their successes, or from things that they could have done better, but ultimately, this is a policy designed with the UK in mind.”
OEUK says windfall tax changes ‘eroded trust’
Speaking to Energy Voice following the meeting, OEUK chief executive Dave Whitehouse said the industry now needed to see policy backing up the Treasury Minister’s statements.
“I think the Minister would have heard, in no uncertain terms, the concerns of the sector and the need to work constructively together in the coming weeks,” he said.
© Supplied by OEUKBut Whitehouse said the offshore sector is wary of the potential for further surprises in the upcoming budget.
“There’s no question that trust is eroded when a tax is extended when we were told it would not be,” he said.
“Those things definitely do erode trust, but we look forward. This is such an important sector, we need the right outcome and the next few weeks I think are going to be critical.”
Whitehouse said Labour will be judged on its promise to oversee a “phased and responsible” North Sea transition by whether or not investment in the sector continues.
“Investment in the sector underpins our jobs, it underpins economic value, it creates that long term tax that the government is looking for, and fundamentally it drives economic growth,” he said.
“So the government will be judged on whether or not they fulfil their promises to work with us to deliver that.”
Whitehouse also agreed the UK tax regime is not comparable to Norway.
“What exists in Norway is a stable, long-term tax regime that encourages investment,” he said.
“That is not what we’re seeing here in the UK. We have had five changes in the last 24 months to our tax regime.”
Recommended for you
