The Scottish Tories have issued a stark warning to Rachel Reeves, cautioning that unless she eliminates the windfall energy levy in her upcoming budget, it could spell the end for oil and gas production in the North Sea.
They are urging the Chancellor to consider recent findings that suggest a reformation of the Energy Profits Levy (EPL) could generate an additional £16 billion for the Treasury, while also securing employment.
The EPL was initially introduced in 2022 as a temporary measure in response to skyrocketing energy prices following Russia’s invasion of Ukraine, but it remains in effect.
In her budget last year, Ms. Reeves not only increased the EPL by 3 percent, raising it to a headline rate of 78 percent, but she also extended its duration to 2030.
Offshore Energies UK, representing the oil and gas sector, has expressed concerns that maintaining the levy until 2030 could result in the loss of 1,000 jobs per month and a 40 percent reduction in output as investment shifts to other regions.
Craig Hoy, the Scottish Conservative finance spokesman, emphasized, “The one non-negotiable in this budget should be the termination 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.’
Chancellor of the Exchequer Rachel Reeves has been urged to scrap plans for a windfall levy
The North Sea oil and gas industry could be badly impacted if a levy is imposed
The new OEUK analysis suggests reforming the EPL in 2026 rather than keeping it to 2030 would yield an extra £15.7 billion in tax over 10 years as more jobs would survive.
It calculated receipts would be £32.9billion between 2026 and 2035 if current plans led to the sector shrinking, but £48.6 billion if EPL was overhauled.
The plan could raise an extra £7.5billion in payroll taxes, £6.3 billion in corporation tax and £4.6billion from a new oil and gas price mechanism and other supply chain taxes.
Despite a short-term revenue dip, the changes would pay for themselves in five years by maintaining jobs and investment, with wider economic benefits, OEUK said.
Chief executive David Whitehouse said: ‘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.
‘The future of the North Sea is in our hands. Our message to government is simple: Reform the EPL in 2026 to unlock more tax not less, support more jobs not less and deliver more homegrown energy not less.’
But Scottish Labour leader Anas Sarwary defended the EPL, suggesting his Westminster colleagues will keep it in place.
Scottish Labour leader Anas Sarwar has backed the levy, saying oil and gas companies are ‘still making billions of pounds in profits’
The Mossmorran gas plant near Cowdenbeath, Fife, is also under threat
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.
‘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.
He added: ‘It has to be a Budget that confronts the cost-of-living crisis and improves living standards. That’s why we need a package to bring down energy bills.’
Mr Hoy added: ‘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.’
Mr Sarwar also criticised the UK Government’s handling of the run-up to the budget, which has seen kite-flying over multiple taxes and a U-turn on income tax hikes.
‘I think it’s been far too long a drawn out process and far too much speculation,’ he said.
A UK Government spokesman said: ‘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.’
