Chancellor Rachel Reeves faces mounting pressure to scrap the North Sea windfall tax, with critics arguing the levy is harming investment and jobs. The energy profits levy (EPL), introduced by the previous Conservative government after Russia's invasion of Ukraine, imposes a 78% effective tax rate on North Sea production. Industry leaders warn it is internationally uncompetitive and deters investment, citing factory closures and declining investment figures.
Gary Smith, general secretary of the GMB union, criticised Reeves for failing to reform or remove the tax in her spring forecast, calling it a case of 'political expediency' over economic necessity. Smith has long advocated for an orderly energy transition, warning that decarbonisation through deindustrialisation costs jobs and pushes voters to the right.
The debate centres on how much oil and gas the UK should produce domestically during the shift to net zero by 2050. While imports are inevitable due to the North Sea's natural decline, proponents of domestic production argue it supports jobs, skills, industrial competitiveness, Treasury revenues, and energy security. Greg Jackson, CEO of Octopus Energy, noted that while North Sea output would be a 'drop in the ocean,' it would bring more tax revenue from British companies.
Reeves has a potential reform ready: the Oil and Gas Price Mechanism, designed to replace the EPL in 2030. This would impose windfall-like charges only when oil prices exceed $90 a barrel or gas prices 90p a therm. Early introduction could address anger from heavy industry and trade unions, but Reeves has yet to signal a change in policy.
