The UK government must replace the windfall tax on oil and gas “as soon as possible,” according to a business-led task force, which warns that the opportunity to secure the future of the North Sea is “closing fast.”
The North Sea Transition Taskforce, supported by the British Chambers of Commerce, criticized the government’s decision to wait until 2030 to replace the “flawed” energy profits levy. The current effective tax rate of 78% on oil and gas profits is “stifling investment” and could lead to lower revenues for the government, the task force said in a report published Monday.
The task force called for a more balanced tax regime that adjusts predictably to changes in hydrocarbon prices, aiming to support long-term investment in domestic gas production to reduce reliance on more carbon-intensive liquefied natural gas imports.
The UK government has launched a consultation on the fiscal regime for oil and gas after 2030 and its manifesto promise not to issue new exploratory drilling licenses.
A survey conducted by the task force, which included unions and supply chains, found widespread concern over the future of the North Sea. The task force urged the government to “act now” to restore investor confidence, fearing the loss of tens of thousands of fossil fuel-related jobs.
From 2030, the oil and gas sector will pay only permanent taxes, set at around 40%, though higher contributions will kick in if wholesale prices spike. The task force argued that if a consensus could be reached on the thresholds for these higher taxes, there was “no reasonable reason” to wait until 2030 to make changes.
“There is no time to hang around,” said Philip Rycroft, chair of the task force. “Speed is of the essence here — good businesses are already voting with their feet.”
The report highlighted Apache’s decision to exit UK offshore operations, the merger of Shell and Equinor’s North Sea assets, and job cuts at BP as signs of growing concern within the industry.
Anas Sarwar, leader of Scottish Labour, voiced support for domestic oil and gas as essential for growth and energy security. He argued that existing North Sea fields could generate “hundreds of billions in value” and that the choice between more expensive energy imports from countries like Russia and new oil and gas from the North Sea is clear.
The task force also recommended the creation of a minister-led committee to oversee the transition from oil and gas to commercially viable renewable energy. The committee, which would include representatives from the Treasury, the Scottish government, and unions, called on the North Sea Transition Authority, the offshore energy regulator, to develop a strategic plan by the end of the year.
Rycroft also urged the government to reassure the industry that drilling in approved areas would be supported.
In response, the Energy Department said it had already taken “rapid steps” to ensure a fair transition in the North Sea, including investments in offshore wind, hydrogen projects, and carbon capture and storage.
Uplift, a group campaigning against fossil fuels, disagreed with the task force’s stance. Robert Palmer, Uplift’s deputy director, argued that more drilling and tax cuts for oil and gas companies would not ensure a just transition for workers.
“Allowing new drilling would seriously undermine investor confidence in the government’s commitment to moving away from oil and gas,” Palmer said. “Ministers should view this report as the oil and gas industry simply doing what it has always done: lobbying for lower taxes.”
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