The exceptional North Sea labor charge is causing backlash in the industry

Government plans for North Sea Oil and Gas are a “direct response” that could put hundreds of thousands of jobs at risk not just in the energy sector, several top industry figures have warned.

In an open letter to the Treasury, more than 40 companies with operations in the North Sea have expressed “serious concerns” about the new government’s energy profit tax plans, which include increasing the overall rate of tax to 78% and scrapping the allowance for investment and exploration.

The signatories – which include engineering companies such as Wood Group, technology firms such as 3t and catering specialists Sodexo – have warned that the tax risks jeopardizing investment in early transition technologies such as floating wind and carbon capture technologies.

However, the main concern of the firms 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.

The exceptional tax will affect jobs

The North Sea energy industry is believed to support 200,000 jobs, with the majority of these roles supporting sectors such as food, transport and infrastructure, said Offshore Energies UK – the industry body which choreographed the letter.

Whole communities in Aberdeen and much of north-east Scotland depend on the industry, which is believed to they support 30 percent of the city’s jobs.

The letter said: “For our companies, (tax plans) risk takers – large and small – continue to reduce or delay their investment plans in response. The ramifications will be felt throughout the supply chain, through the jobs and communities this industry supports, both directly and indirectly.”

But the government claimed 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 Britain’s renewable capacity.

GB Energy, the state-owned renewable energy firm that will underpin Labour’s clean energy industrial strategy, will be based in Scotland when it is formally established in the coming months.

The letter also claimed that the current plans would increase the country’s energy trade deficit, saying: “The UK spent almost £27 billion on crude oil imports and over £21 billion on gas imports last year last.

“This is £6bn more than UK crude oil export receipts and £17bn more than gas exports. The measures announced risk both the net fuel import gap and the emissions footprint of fuel imports rising long before the UK can provide reliable, affordable and affordable alternative energy sources.”

The firms called Labour’s plans a “surprise”, despite them being a key part of the party’s manifesto.

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

The government announced energy tax reforms in the run-up to the election, claiming they would help fund around £23.7 billion in green spending.

The tax was first announced by the previous administration after Russia’s invasion of Ukraine sent energy firms’ profits soaring.

It was initially charged at 60 percent, which was later raised to 75 percent and also contained an allowance for investment and exploration.

But as oil and gas prices returned to more regular levels, the tax destroyed the profits of many of the North Sea’s key players; a fact made even more difficult by the fact that the region is one of the most mature, and therefore less profitable, oil fields in the world.

North Sea producers reduce production

Thursday, Ithaca Energy – one of the region’s biggest players – reported a major profit drop in its half-year results, which it said was partly due to the one-off tax.

And earlier this year, Harbor Energy announced it would cut 350 UK jobs, blaming the tax after it said it “virtually wiped out” the company’s profits in 2022.

The letter added: “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 has been tasked with being the most pro-growth in our country’s history and the Chancellor has pledged to ‘work hand in hand with business’.” Ministers have talked about working in partnership, about the critical role of the people whose jobs are supported by our offshore energy sector, but we need those commitments to be honoured.”

A Treasury spokesman said: “We are consolidating the previous government’s windfall levy 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.”

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