On July 5, the U.K.’s Labour Party secured a landslide victory in the General Election, winning 412 seats out of 650, and marking a significant shift in the U.K.’s political landscape.
Following the election, the U.K. oil and gas industry continues to voice concerns over Labour’s pledges to extend the windfall tax and end new oil and gas licenses in the North Sea. The new Labour Government intends on increasing the windfall tax from currently 35 percent to 75 percent, imposing a huge financial burden on oil and gas producers, and plans to scrap tax relief measures which currently allows oil and gas producers to get 91p in tax relief for every £1 they invest in U.K. operations.
Energy experts have warned that the proposed changes will have significant socio-economic ramifications on communities across the U.K. and ultimately could leave its citizens, the industry and the U.K.’s energy security in a perilous state. David Whitehouse, Chief Executive of Offshore Energies UK (OEUK), echoed the sentiment in the organization’s response to the General Election outcomes:
“The people in our sector and investors remain deeply concerned over Labour proposals to impose a further windfall tax and end new licences. These policies, if poorly managed, and without industry input will threaten jobs and undermine the decarbonisation of the UK economy.”
More harm than good as companies continue to abandon the North Sea
The U.K. is increasingly finding itself reliant on imports to meet needs as demand for energy soars. However, Labour’s unsupportive tax framework is causing key U.K. offshore operators, such as Harbour Energy, the U.K.’s largest oil and gas producer, and TotalEnergies to cut back on investments and look elsewhere for favourable returns.
Recently, David Latin, Chair and interim Chief Executive of Serica summarized the sentiment of the industry by comparing the U.K.’s tax framework to a “war zone”:
“Other than when I was responsible for a company which had significant assets in a war zone, I have never encountered a situation which was so challenging when it comes to making investment decisions.”
David Bucknall, Chief Executive of Ineos Energy, also voiced the company’s intention to prioritize expansion in the United States and Denmark rather than the U.K. due to its hostile fiscal regime. Bucknall stated:
“If we’re looking to expand the footprint of our business, the other two regions we operate, Denmark and the US, are much easier to invest in at the moment. And that’s where our focus is.”
Indeed, corporate exodus has caused significant problems for the Treasury’s revenues, with analysts at Stifel warning that U.K. could lose £20 billion in tax revenues and see a £40 billion reduction in investments between now and 2030.
Moreover, without further investment and with the current oil and gas consumption being double that of domestic production, it is expected that the U.K. will need to import more than 80 percent of energy needs by 2030.
Not only will this threaten the U.K.’s energy security, but it will be counterintuitive to the country’s net-zero aims as data shows the carbon footprint of homegrown oil production is around three times lower than imported barrels.
The negative impact on communities and employment opportunities
Lower investment levels are also expected to decimate communities reliant on the sector, which has prompted an alliance of unions and environmental groups to call for ‘clear and funded’ transition plan for communities where oil and gas is imperative to the local economy.
In Scotland alone, up to 100,000 jobs across the production and supply chain are now at risk due to Labour’s unsupportive and unstable policies. A recent report from EY discovered the gross value of Scotland’s employment sector could plummet from £19bn a year in 2019 to £12bn by 2050 as a result of the unstable fiscal and political environment.
These revelations have left people like Mika Minio-Paluello, a policy officer at the Trades Union Congress, to draw parallels with communities who were reliant on coal in the 1980s and suffered from severe socio-economic problems once the coal mines were closed.
Joe Rollin, a senior organizer at the union Unite, warned:
“We simply can’t let these workers be the coalminers of this generation, with all the devastation to lives and communities that would entail”
Bottom Line: With new U.K. Government vows to hit the ground running, the energy industry warns that Labour’s plans could significantly jeopardize jobs and communities with companies being forced out of the North Sea. The new Labour government must work with the sector and listen to its experts to protect the country’s energy security and ensure that no one is left behind during the U.K’s energy transition.
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