The Treasury has sought to defuse a fierce dispute with the North Sea oil and gas industry by promising to maintain investment relief for low-carbon projects to protect jobs and mitigate the expansion of energy VAT.
Chancellor of the Exchequer Rachel Reeves said last month she would increase the levy on energy industry profits as part of her plan to plug a £22 billion “hole” in public finances that Labour said was left by the previous Conservative government.
But energy bosses and unions representing North Sea workers warned the changes could lead to job losses and investment problems in Britain, particularly in Scotland, where much of the industry is based and where Labour regained dozens of seats in Keir Starmer’s landslide general election victory.
At talks held in Aberdeen, Britain’s oil capital, on Monday to allay industry concerns, Finance Minister James Murray said the government would work to protect jobs and investment in Scotland.
Speaking to the Guardian, he said the Treasury would maintain a generous 80% investment allowance for decarbonising the industry, despite wider measures to raise billions of pounds from energy companies.
“The Chancellor of the Exchequer has announced the decision to remove unjustifiably generous emissions allowances. However, emissions allowances for decarbonisation will remain,” he said.
“We are absolutely committed to managing the energy transition in a way that protects jobs and investment. We want to ensure that the energy transition, which is vital to securing the UK’s energy supply and reducing energy costs, is delivered in a way that protects jobs and investment.”
The Treasury said last month that the energy profits tax, which the Conservatives first introduced in 2022, would run a year longer than planned, until March 31, 2030. It will rise from 35 percent on energy sector profits to 38 percent, on top of an overall tax rate of 40 percent. A 29 percent investment allowance will also be scrapped.
After meeting with Murray and bosses of companies including BP and Shell, David Whitehouse, chief executive of industry lobby group Offshore Energies UK, said thousands of jobs and billions of pounds in economic value were at stake.
“The Minister has once again heard very clearly directly from senior business leaders the impact these proposals are already having on businesses of all sizes and their skilled workers across the UK,” he said.
Peter Welsh, of the GMB union, said: “The minister says he is willing to listen. We hope the government does too because something needs to change. with Workers and their industries and not To them.”
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Before the general election, Labour announced that it would raise around £6 billion by extending the energy tax. The party plans to use the revenue to finance the establishment of Great British Energy, a state-owned clean energy company based in Scotland.
Murray declined to say whether the latest changes will result in more revenue than planned, saying more details would be provided in the Oct. 30 budget. But he hinted that tax increases could be a central part of Reeves’ plans.
“Our legacy (from the Conservatives) is even worse than we thought. That means there will be some difficult decisions on spending, benefits and taxes,” he said.
