Rachel Reeves has been urged to axe the North Sea windfall tax ahead of talks with energy sector leaders in the North-east today.
The chancellor will visit RAF Lossiemouth in Moray and the St Fergus gas plant in Aberdeenshire later this afternoon, where she will say the Labour government is “seizing the huge potential and opportunities that Scotland has to offer”.
However, she is expected to come under pressure over the Energy Profits Levy, which will half North Sea production within five years, placing tens of thousands of jobs needlessly at risk while the UK imports record amounts of oil and gas from overseas.
The UK Government said its plans to increase defence spending to 2.6% will raise Britain’s GDP by around 0.3%, while adding 26,100 jobs to the Scottish economy.
Ministers have pointed to its £200million investment for Aberdeenshire’s Acorn carbon capture project, which could create 15,000 new jobs while safeguarding 18,000 more. A final investment decision for the project is yet to be made.
Speaking ahead of the visit, Ms Reeves said: “Whether it’s in defence to keep the UK safe, or clean energy to power all corners of the country, this government is backing Scotland with billions of pounds of investment to grow the economy and create jobs.”
Her visit follows comments this week from GMB General Secretary – who said “oil and gas is not the enemy . . . and we’ve got to stop seeing it as a threat” – and President Trump, who noted on his visit to Scotland that UK taxes on oil and gas “are so high . . . that it makes no sense”.
The Energy Profits Levy, or “windfall tax”, on the North Sea was introduced by the last UK government and extended and increased significantly under the current Labour administration. This is despite windfall conditions created by Russia’s invasion of Ukraine having long since ended.
Despite this, oil and gas firms face a level of corporate taxation more than three times the rate on other sectors, strangling investment and driving people and businesses overseas – according to evidence from the most recent AGCC Energy Transition Survey.
The UK economy contracted by 0.1% in May, driven significantly by a decline in oil and gas extraction.
While the North Sea is a mature basin, with the natural rate of hydrocarbon production dropping by around 4% annually, government policy is more than doubling this rate of decline – at a time when supply still falls well short of demand, oil and gas continues to make up 75% of our energy needs and the UK is simply required to import more of this from overseas, with negligible economic benefit.
Speaking ahead of the chancellor’s visit, Aberdeen & Grampian Chamber of Commerce Chief Executive Russell Borthwick said: “Once again this week we heard from the Prime Minister that oil and gas will be with us ‘for decades to come’.
“That’s a welcome statement of intent, but it doesn’t match what the UK government is doing on tax. If we stick to course on the accelerated decline of the North Sea, then we’ll only have a few short years and not prosperous decades of future oil and gas from our own waters.
“Instead, we’ll import more, pay more and suffer further consequences of jobs and businesses lost – just at the time we need them to support the energy transition.
“We know the chancellor needs to find growth from somewhere within the UK economy. With oil and gas, there’s no need to start from scratch or build out a nascent industry.
“Simply by removing the confiscatory EPL, letting investment flow into projects and stimulating activity in a sector which has hammered by policy for too long, we can unlock significant growth in the UK economy.”
Scottish Lib Dems MP Alistair Carmichael urged Ms Reeves to announce new measures to break the link between gas prices and electricity costs to secure cheap, clean power.
“I’m surprised the Chancellor can find a business to host her,” he said. “She won’t be welcome in Aberdeen because of what she has done to oil and gas and she won’t be welcome in most of the shire because of her plans on inheritance tax. All that on top of national insurance increases that are crippling business growth everywhere.”