The North Sea is approaching “game over territory” after Rachel Reeves pushed forward with an expanded tax raid on oil and gas companies.
On Monday, the Chancellor followed through on Labour’s election pledge to impose harsher taxes on oil companies by increasing the energy profits levy. Reeves announced that the levy, initially introduced by the Conservatives, will now extend for an additional two years, expiring at the end of March 2030, with the headline rate rising from 75 per cent to 78 per cent.
She also abolished an “unjustifiably generous” allowance that permitted companies to deduct a portion of their investments in new oil and gas fields from their tax obligations. This allowance will cease on November 1, though investments made before this date will remain unaffected.
A separate allowance for investment in green energy projects will continue to be deductible from the tax.
The Chancellor’s decision was met with fierce criticism from oil and gas companies, who branded it “reckless, wrong, and economically ruinous for the North Sea.”
Russell Borthwick, chief executive of the Aberdeen & Grampian Chamber of Commerce, representing a significant portion of the industry, said: “The new government is pushing the North Sea dangerously close to ‘game over’ territory, jeopardising our energy transition. Instead of viewing the energy sector as a solution to the UK’s public finance challenges, the Chancellor has chosen to tax the industry into oblivion.”
He added, “This decision will result in £20 billion lost in Treasury revenues, increased reliance on imported oil and gas—which is worse for the planet and the economy—and the potential loss of tens of thousands of jobs.”
Prior to Labour’s election victory earlier this month, Reeves had estimated that the expansion of the windfall tax would generate an additional £10.8bn in revenue. However, analysts have warned that this move could trigger “unintended consequences,” accelerating the decline of the North Sea.
An analysis by Wood Mackenzie previously cautioned that the new tax could prompt oil and gas companies to “freeze investment” until the tax expires, with some companies likely to conclude production on older fields prematurely, withdraw supporting infrastructure, and reduce investments in green technologies such as offshore wind and carbon capture and storage.
Graham Kellas of Wood Mackenzie added that while the new headline tax rate matches that of Norway, the removal of capital allowances and the UK’s frequent rate changes have made the UK appear like a “fiscal wild west,” deterring investors.
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Reeves’ tax raid spells ‘game over’ for North Sea oil and gas