Labour’s North Sea foray ‘will deal £13bn hit to economy’

Labour’s planned increase in windfall tax on North Sea oil and gas producers will deal a £13bn hit to the economy, according to industry analysis.

Offshore Energies UK (OEUK), which represents the sector, said most investment plans for the next five years would be scrapped if the increase goes ahead, undermining the government’s goal of boosting growth.

The industry faces an increase in the main tax rate from 75 percent to 78 percent and the loss of investment tax breaks.

OEUK said that while this would provide a “very short-term” boost to Treasury tax revenues, it would soon reverse and end up leaving the public purse £12bn worse off.

That could jeopardize plans to use windfall tax revenues to fund green energy investments and other growth plans, he warned.

David Whitehouse, chief executive of OEUK, said: “This is a government that has made economic growth its top priority and yet our analysis shows that its policy will ultimately reduce the contribution of this sector to the UK economy.”

The figures were released as Chancellor of the Exchequer Rachel Reeves prepares to present her autumn budget next month.

According to OEUK analysis, Labour’s plans would see capital investment in the sector fall from the projected £14.1bn to just £2.3bn between 2025 and 2029. That would mean the total value added by the sector to the economy would fall to £16bn, £13bn less than it would have been.

OEUK found that the Treasury would see its North Sea tax take continue to rise until 2026 before slowing compared to the current scenario, meaning it would ultimately collect £12bn less in tax cumulatively over the five-year period.

Whitehouse said: “For more than two years, UK oil and gas operators have paid three times more corporation tax than any other sector. Time is running out to mitigate the damage and prevent an escalation.”

A Treasury spokesman said: “We are committed to maintaining constructive dialogue with the oil and gas sector to finalise changes aimed at strengthening the windfall tax.”