Scottish Labour leader Anas Sarwar has called for changes to the windfall tax to drive fresh investment into North Sea oil and gas.
Speaking on the Holyrood Sources podcast, Mr Sarwar said the UK Government has to make North Sea fields "investible" and suggested there should be movement on allowances to support new projects, to protect jobs and to reduce reliance on imported energy.
His comments - which are a departure from his Westminster colleagues - come as new UK Government data show that gas imports are surging while domestic production drops.
Shortly after winning power last year, Chancellor Rachel Reeves increased the Energy Profits Levy (EPL), taking the headline tax rate to 78% and extending it by a further year until March 2030.
The levy’s 29% investment allowance, which allowed companies to offset tax from capital that is re-invested, was also be scrapped, although the capital allowance (100% first year allowance) was retained.
However, Mr Sarwar said HM Treasury must look again at allowances to give companies the confidence to invest in new oil and gas projects, and to work "in genuine partnership" to make the big investments required in renewables to deliver a successful energy transition.
"I support the windfall tax – let me be clear about that – and we did win some concessions around allowances," he said.
"But I do think we still need further movement on the allowances because the challenge we have right now is that even if we are to issue the licences for Jackdaw and Rosebank, there are (already) fully licensed oil and gas fields which right now for many people don’t feel like investible propositions – and we have to make them investible propositions.
“This is in order to yield tax receipts for HM Treasury, as well as making sure we have greater energy security, so we are not importing oil and gas to the extent (we have seen), to protect our jobs, and to give a fairer period around the transition and make sure we are getting the investment we need to attract into our country."
Soaring imports
Meanwhile, latest UK energy trends report for January-March - published by the UK Government yesterday - shows imports of gas increased by a 19% annually, while domestic production is now down by 20% compared to pre-pandemic levels (2019).
Imports of liquefied natural gas (LNG), which the NSTA regulator states is four time worse for the environment than domestic gas, increased by 42% compared to the same period in 2024, while imports also rose from other regions including Qatar. Gas demand over the quarter increased 8.5%, the highest amount for any quarter in the UK since 2021.
The demand was driven by the lowest wind speeds for a Jan-Mar quarter since 2010, coupled with colder temperatures. Electricity generation from wind power subsequently dropped 13%.
Overall, the UK’s dependency on imports for its energy needs was 47% during the quarter. Domestic oil production is meanwhile down 40% on pre-pandemic levels.
The data shows the winding down of the Grangemouth refinery saw production of UK oil products dropped 7.1% over the quarter, while imports increased.
North Sea gas has accounted for around half of domestic demand for the last decade, however policies such as the windfall tax are harming investment appetite and risk tipping the balance towards import reliance.
Russell Borthwick, Chief Executive of the Aberdeen and Grampian Chamber of Commerce (AGCC), said: “This data evidences the urgent need to realise the potential of our domestic resources in the North Sea, rather than rely on costly, carbon heavy imports which support no UK jobs.
“At a time when we are seeing job cuts in the oil and gas sector and policy barriers to the delivery of renewables, we need to make the right decisions for a managed transition.
“Earlier this week a Westwood Energy study showed there is up to 7.5 billion barrels of oil and gas which could still be produced in UK waters; we urge the UK Government to pursue that economic prize which will help us protect jobs, reduce emissions, and mitigate imports, which can only happen with an immediate end to the Energy Profits Levy.”