Mark Brown

Recent developments surrounding the UK government’s fiscal policies, particularly the Energy Profits Levy (EPL), have stirred deep concerns across the sector.

The planned rise in the windfall tax from 35% to 38%, coupled with the extension of its duration to 2030, threatens to undermine the long-term stability needed for growth and a progressive transition to renewable energy.

Offshore Energies UK (OEUK) recently forecast that these changes could result in a £13 billion loss to the UK economy between 2025 and 2029, putting approximately 35,000 jobs at risk. The ripple effect of such outcomes would be felt not just by energy companies but also by local communities such as Peterhead – a vital hub for Scotland’s energy operations. Reductions in investment would severely impact the region’s economic resilience.

Chancellor Rachel Reeves’ plans to remove “unjustifiably generous” investment allowances have further heightened anxiety. These allowances have historically incentivised companies to invest in innovative projects, including those aimed at reducing carbon emissions.

Removing these benefits could accelerate the decline of North Sea activities, undermining both sustainability and economic growth. Leaders in Aberdeen, including Aberdeen & Grampian Chamber of Commerce (AGCC), have warned that without these allowances, the UK risks losing energy independence and thousands of jobs.

That said, there appears to be some positive movement on the horizon. Energy Secretary Ed Miliband visited Aberdeen last week, where he promoted substantial funding to support Scotland’s energy sector. The senior Labour politician pledged to accelerate the delivery of overdue oil and gas skills passports, helping North Sea workers transition into renewables.

The UK and Scottish governments signed an agreement focused on partnerships with Scottish public bodies in the clean energy sector, and a digital tool for workers is set to be piloted by January 2025. Mr Miliband’s visit, alongside Great British Energy chair Juergen Maier, marked the first trip since Aberdeen was announced as the headquarters for the investment body. This development is expected to create jobs and build further momentum for the city’s pivotal role in the energy transition.

The media has also reported that the upcoming budget may offer some optimism through provisions aimed at boosting sustainable growth by reducing the carbon intensity of oil and gas production.

However, industry leaders have made it clear that this must be balanced with the existing tax regime. Without constructive dialogue between the government and the sector, the long-term health of the North Sea could be jeopardised, affecting both job creation, job diversification and energy security.

AGCC has been particularly vocal about the risks posed by increased taxation on the sector. The Chamber’s Energy Transition Survey found that confidence in the North Sea is at an all-time low, worse than during the financial crisis or the oil price crash.

The Chamber proposes a five-point plan to the Treasury, aimed at protecting jobs in the North Sea, including the removal of the EPL by the end of 2025 and a progressive successor regime that adjusts the tax rate based on fluctuating oil and gas prices. Without urgent action, AGCC says, the sector faces a bleak future with an estimated 100,000 jobs at risk when accounting for indirect employment.

The message is clear: the North Sea has long been a cornerstone of the UK’s economy, and with the right support, it can continue to play a crucial role in driving sustainable growth.

Stability and collaboration are critical to ensuring the energy sector’s valuable contribution is maintained while transitioning towards a sustainable future.

Mark Brown is a partner at MHA, based at its Aberdeen office