The government’s plans for Oil and gas from the North Sea are a “harsh reaction” that could endanger hundreds of thousands of jobs – not only in the energy sector, warned several leading figures in the industry.

In an open letter to the Treasury, over 40 companies operating in the North Sea expressed their “great concern” about the new government’s plans for the energy profit levy. These plans include increasing the tax rate to 78 percent and removing the investment and exploration allowances.

The signatories – including engineering companies such as the Wood Group, technology firms such as 3t and catering specialist Sodexo – warned that the levy could jeopardise investments in emerging transition technologies such as floating offshore wind turbines and carbon capture technologies.

But companies’ biggest concern was the negative impact the plans would have on jobs – not just in the energy sector, but also in the industries and communities that support it.

Special tax will burden jobs

The North Sea energy industry provides an estimated 200,000 jobs, most of them in supporting sectors such as hospitality, transport and infrastructure, said Offshore Energies UK, the industry association that wrote the letter.

Entire communities in Aberdeen and much of north-east Scotland depend on the industry. It is believed that secure 30 percent of the city’s jobs.

The letter states: “For our businesses, (the tax plans) pose a risk that operators – large and small – will further scale back or delay their investment plans in response. The consequences will be felt throughout the supply chain, in jobs and in the communities this industry supports, both directly and indirectly.”

However, the government argues that its reforms would create “thousands” of jobs in the same part of the UK, thanks to offshore workers who have the “vital” skills to help build the UK’s renewable energy capacity.

GB Energy, the state-owned renewable energy company that will form the basis of Labour’s clean energy industrial strategy, will be headquartered in Scotland when it is officially launched in the coming months.

The letter also said the current plans would increase the country’s energy trade deficit: “The UK spent almost £27 billion importing crude oil and over £21 billion importing gas last year.”

“That is £6 billion more than the revenue from UK crude oil exports and £17 billion more than gas exports. The measures announced risk widening both the net import gap in fuels and the emissions footprint of fuel imports long before the UK can deliver reliable, affordable alternative energy sources.”

Businesses described Labour’s plans as a “surprise”, even though they were a central part of the party manifesto.

Making Britain a “clean energy superpower” is one of the government’s five core “missions”. Keir Starmer will be introduced in February 2023 – almost 18 months ago – when his party was in opposition.

The government announced the energy tax reform ahead of the election, saying it would help fund around £23.7 billion in green spending.

The tax was first announced by the previous government after energy companies’ profits soared following the Russian invasion of Ukraine.

The original tax rate was 60 percent, later increased to 75 percent and also included an allowance for investments and exploration.

But as oil and gas prices returned to more normal levels, the tax cut into the profits of many major players in the North Sea. To make matters worse, the region is one of the least developed and therefore least profitable oil fields in the world.

Producers in the North Sea are reducing their production

On Thursday, Ithaca Energy – one of the largest players in the region – reported a significant drop in profits in its half-year report, which it said was partly due to the special income tax.

And earlier this year, Harbour Energy announced it would cut 350 jobs in the UK, citing the tax as having “virtually wiped out” the company’s profits in 2022.

The letter continues: “The Prime Minister has assured the sector that the North Sea will be managed in a way that does not put jobs at risk.”

“The Treasury is tasked with being the fastest growing economy in our country’s history and the Chancellor has committed to ‘working hand in hand with business’. Ministers have spoken of working in partnership and the critical role of the people whose jobs are supported by our offshore energy sector, but we must deliver on those commitments.”

A UK Treasury spokesman said: “We are strengthening the previous government’s special tax to ensure North Sea oil and gas producers contribute their fair share to our energy transition.”

“Our plans for a new National Wealth Fund and Great British Energy will create thousands of new jobs in the industries of the future.”

By City AM

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