The Scottish Conservatives have issued a stark warning to Chancellor Rachel Reeves, demanding she scraps the controversial Energy Profits Levy in her upcoming budget or risk sounding the "death knell" for North Sea oil and gas operations.
Industry Warns of Devastating Job Losses
According to fresh analysis, maintaining the windfall tax until 2030 could cost the sector 1,000 jobs every month and trigger a dramatic 40% drop in production as investors seek opportunities elsewhere. The Energy Profits Levy was initially introduced as a temporary measure in 2022 following Russia's invasion of Ukraine, which caused global energy prices to skyrocket.
However, the levy remains in place today. Chancellor Reeves not only increased it by 3% to a headline rate of 78% in her previous budget but also extended its duration by one year to 2030.
Craig Hoy, Scottish Conservative finance spokesman, stated unequivocally: "The one non-negotiable in this budget ought to be the end of the Energy Profits Levy. The EPL, along with Labour's ban on new oil and gas projects, is costing an estimated 1,000 job losses every month. Unless the Chancellor removes it, she will sound the death knell for a sector that's on its knees and devastation for communities across the North East."
Reforming Levy Could Boost Treasury Revenue
Offshore Energies UK, representing oil and gas companies, has conducted new analysis revealing that reforming the Energy Profits Levy in 2026 rather than maintaining it until 2030 would generate an additional £15.7 billion in tax revenue over the following decade by preserving employment and investment.
The calculations show that tax receipts would reach £32.9 billion between 2026 and 2035 if current plans proceed and the sector contracts. However, this figure could surge to £48.6 billion if the EPL undergoes significant reform.
The proposed changes would generate extra revenue through several channels:
- £7.5 billion in additional payroll taxes
- £6.3 billion in corporation tax
- £4.6 billion from a new oil and gas price mechanism and other supply chain taxes
Despite an initial short-term reduction in revenue, Offshore Energies UK asserts these modifications would pay for themselves within five years by sustaining jobs and investment, while delivering broader economic benefits.
Political Divide on Energy Taxation
David Whitehouse, Chief Executive of Offshore Energies UK, emphasised: "Our proposal will unlock immediate investment, secure tens of thousands of jobs, and deliver more tax, not less for essential services like schools and hospitals. Reforming the Energy Profits Levy will also support the UK's wider energy future by sustaining the supply chain and industrial capabilities needed for offshore wind, carbon storage, and hydrogen projects."
In contrast, Scottish Labour leader Anas Sarwar has defended maintaining the levy, indicating his Westminster colleagues intend to keep it operational. The Glasgow MSP told BBC Scotland's Sunday Show: "Many of the larger oil and gas companies are still making billions of pounds in profits at the same time as people's energy bills are going up. We've got to have the right balance."
Sarwar criticised other political parties, saying: "Other political parties want to give a tax cut to some of the most profitable companies in the world, whilst they want to increase income taxes for some of the poorest people in this country. I don't think that is the right balance."
Responding to Sarwar's position, Craig Hoy remarked: "It's astonishing that Anas Sarwar has admitted that energy costs are strangling growth and causing a cost of living crisis, but carries on stubbornly defending the policies that created the problem."
A UK Government spokesman concluded: "The Chancellor will deliver a Budget that builds stronger foundations to secure Scotland and the whole United Kingdom's future, focusing on the priorities of working people: cutting waiting lists further, cutting the national debt and cutting the cost of living."
