A business-led task force has called on the UK government to replace the windfall tax on oil and gas profits “as soon as possible,” warning that the future of the North Sea energy sector is at risk.
The North Sea Transition Taskforce, which is supported by the British Chambers of Commerce, criticized the government’s decision to wait until 2030 to replace the current energy profits levy. The task force argued that the effective tax rate of 78% on oil and gas profits is stifling investment and could ultimately lead to lower revenues for the Treasury.
In a report released on Monday, the task force called for a tax regime that adjusts in a predictable manner with fluctuations in hydrocarbon prices. This would help support long-term investment in domestic gas production, reducing the reliance on carbon-heavy liquefied natural gas imports.
The UK government is currently consulting on the fiscal regime for oil and gas beyond 2030, as well as its pledge to stop issuing new exploratory drilling licences.
A survey of unions and supply chains by the task force revealed widespread concerns about the future of the North Sea, urging the government to act now to restore investor confidence and safeguard thousands of fossil fuel-related jobs.
From 2030, the oil and gas sector is expected to revert to paying a permanent tax rate of around 40%. However, taxes would rise if wholesale prices spike. The task force argued that, with agreement on the thresholds for higher taxes, there is no reason to delay changes until 2030.
“There is no time to wait,” said Philip Rycroft, chair of the task force. “Speed is crucial — companies are already leaving.”
The report pointed to Apache’s exit from UK offshore operations, the merger of Shell and Equinor’s North Sea businesses, and job cuts at BP as examples of the industry’s declining confidence.
Scottish Labour leader Anas Sarwar has expressed support for domestic oil and gas production, viewing it as a critical part of economic growth and energy security. He argued that existing North Sea fields could provide substantial value, adding that domestic oil and gas should take precedence over expensive imports from countries like Russia.
The task force also recommended the creation of a minister-led committee to oversee the transition from oil and gas to renewable energy sources. This committee, including representatives from the Treasury, Scottish government, and unions, would push the North Sea Transition Authority to develop a strategic plan by the end of this year.
Rycroft called on the government to reassure the industry that drilling in approved areas would be supported.
In response, the Department for Energy said it had already taken steps to ensure a fair transition in the North Sea, including investments in offshore wind, hydrogen, and carbon capture technologies.
However, the group Uplift, which campaigns against fossil fuels, criticized the calls for more drilling and tax cuts. Robert Palmer, Uplift’s deputy director, warned that allowing new drilling would undermine public confidence in the government’s commitment to shifting away from oil and gas.
“Ministers should see this report as the oil and gas industry lobbying for lower taxes,” he said.
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