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The UK government should replace the windfall tax on oil and gas “as soon as practicable”, a business-led task force has said, warning the window of opportunity to secure the future of the North Sea is “closing fast”.
The North Sea Transition Taskforce, backed by the British Chambers of Commerce, said ministers have chosen to “wait too long” with their decision to replace the “flawed” energy profits levy in 2030.
The current effective tax rate of 78 per cent on oil and gas profits was “throttling investment” and risked lower revenues for the Treasury, according to a report released on Monday.
The industry-backed task force called for a more proportionate regime that would adjust in predictable ways to hydrocarbon prices, thereby supporting long-term investment in domestic gas to replace more carbon-intensive imports of liquefied natural gas.
The UK government has opened a consultation on the post-2030 fiscal regime for oil and gas and its manifesto commitment not to issue new exploratory drilling licences.
The taskforce’s survey of unions and supply chains revealed “widespread concerns” over the North Sea’s future, calling on ministers to “act now to restore investor confidence” amid fears for tens of thousands of fossil fuel-related jobs.
From 2030, the oil and gas sector will return to paying only permanent taxes, currently set at roughly 40 per cent, but would automatically contribute more if wholesale prices rose to unusual levels.
The task force said if consensus was achieved on the thresholds at which higher taxes would kick in there was “no reasonable reason” to delay until 2030.
“There is no time to hang around,” said Philip Rycroft, chair of the task force. “Speed is of essence here — good businesses are already voting with their feet.”
The report cited Apache’s decision to quit UK offshore operations, the merger of Shell and Equinor operations in the North Sea and job cuts at BP.
Anas Sarwar, leader of Scottish Labour, has supported domestic oil and gas as a driver of growth and energy security. He said existing fields in the North Sea could yield “hundreds of billions of value”.
“Put bluntly, if the choice is more expensive imports from despotic regimes like Russia or new oil and gas [from the North Sea], then the answer must be oil and gas,” he said.
The task force also recommended a minister-led committee to manage the transition from oil and gas to commercially viable renewable energy.
The committee, including representatives from the Treasury, Scottish government and unions, called on the North Sea Transition Authority, which regulates offshore energy, to draw up a strategic plan by the end of this year, said Rycroft.
Rycroft also called on the government to assure industry that drilling in consented areas would be welcomed.
The energy department said it had already taken “rapid steps” to deliver a fair transition in the North Sea, including investments in offshore wind, hydrogen projects and carbon capture and storage.
Uplift, which campaigns against fossil fuels, said more drilling and lowering taxes on oil and gas companies would not deliver a just transition for workers.
“Allowing new drilling would seriously undermine investor confidence in the government’s commitment to shifting away from oil and gas,” said Robert Palmer, deputy director of Uplift.
“Ministers should view this report as the oil and gas industry simply doing what it has always done: lobby for lower taxes.”
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