Rachel Reeves has faced accusations of obstructing £17.5 billion in investment in North Sea oil and gas by postponing proposals to eliminate a controversial windfall tax.
In light of the outbreak of the war in Iran, the Chancellor reversed her plans to announce an early end to the Energy Profits Levy, which is currently set to expire in 2030.
A spike in energy prices due to the Middle East crisis prompted Reeves to delay those plans, angering the industry.
Oil and gas companies have reportedly identified North Sea projects capable of delivering over a billion barrels of oil and gas by the end of the decade. They informed the Chancellor last month that they were ready to move forward with these projects, but only if the government scrapped the windfall tax early.
One industry representative criticised the decision to delay the transition from the current Energy Profits Levy to an Oil and Gas Price Mechanism, calling it “economic illiteracy on steroids.”
This situation arises amid increasing pressure on Reeves and Energy Secretary Ed Miliband to reconsider their positions on the UK’s oil and gas reserves.
Miliband has prohibited new oil and gas exploration off Britain’s coastline as part of his Net Zero agenda; however, in the wake of the war in Iran, he is facing calls from Labour MPs and trade unions to allow more drilling.
Sources within the energy sector have indicated to The Times that without a tax overhaul, advancing a multi-billion-pound investment program would remain unviable.
One said: “Oil and gas companies have had their North Sea profits all but wiped out by a punitive energy profits levy that has made the UK virtually uninvestable.
“That remains the case under the current price of oil and gas and the government is wrong to conflate much larger global profits with meagre returns in the North Sea.
“It would be economic illiteracy on steroids if the government were to choose not to seize a £17billion investment opportunity by 2030, which is predicated on an early move from EPL to OGPM.
“Every £1 invested by the oil and gas sector generates around twice that amount in GVA [gross value added] — so the government would effectively be turning down over £30 billion in additional value to the UK economy.”
A Government spokesperson said: “We’re giving the sector and its investors the long-term certainty to plan, invest and support jobs with plans to replace the Energy Profits Levy when it ends by 2030, or earlier if its price floor is triggered.
“We are also making sure the North Sea has a prosperous and sustainable future through record investment that helps deliver the next generation of skilled jobs while growing the clean energy industries of the future.”
