Reeves Weighs End to Windfall Tax on North Sea Firms
Chancellor Rachel Reeves is considering scrapping the windfall tax on North Sea oil and gas producers in her upcoming Budget. The move is part of a broader plan to stimulate investment and reignite economic growth amid warnings that the 78% effective tax rate is deterring exploration and development.
Introduced by Rishi Sunak in 2022, the Energy Profits Levy (EPL) was designed to capture excess profits from soaring energy prices. However, the Treasury’s consultations suggest that operators may reinvest heavily if the tax is cut or ended early.
Treasury Consults Industry to Unlock Investment
The Treasury has held talks with major oil companies including Shell, BP, and Harbour Energy to gauge how much new investment could flow if the levy is dropped. Industry group Offshore Energies UK (OEUK) claims that abolishing the tax could unlock £40 billion in investment and reverse the loss of roughly 1,000 jobs a month.
Officials are also examining a plan to replace the windfall tax with a permanent, price-based levy that would activate only when energy prices exceed certain thresholds, ensuring stability for long-term investors.
Economic Case Hinges on OBR Verdict
Any final decision will depend on analysis from the Office for Budget Responsibility (OBR), which must determine whether scrapping the levy would boost growth enough to offset lost revenue. The OBR has already warned that extending the EPL to 2030 a decision taken by Ms Reeves earlier this year could reduce North Sea investment by 25% and cut production by up to 9%.
While the original extension was expected to raise around £1 billion, falling energy prices have weakened those forecasts, further fuelling the argument for reform.
Balancing Green Goals with Economic Realities
Labour’s potential rollback of the windfall tax comes as the Government prepares to unveil a new North Sea strategy focused on “homegrown energy.” The initiative aims to balance the UK’s net-zero ambitions with the need to sustain domestic oil and gas output.
Yet the proposal risks sparking tension within the Cabinet. Energy Secretary Ed Miliband, a vocal supporter of net-zero targets, is expected to resist any measure that could prolong fossil fuel reliance, potentially putting him at odds with Ms Reeves.
Political Stakes High in Scotland
The political implications of the decision are particularly acute in Scotland, where the windfall tax remains a divisive issue ahead of next May’s parliamentary elections. Scottish Labour leader Anas Sarwar has already called for the levy to be relaxed, arguing that it jeopardises thousands of jobs in the North Sea energy sector.
Scrapping or scaling back the tax could improve Labour’s standing in Scotland but risks alienating environmental groups and sections of the party’s left who see the measure as key to climate justice.
Reeves Faces Tough Choices Ahead of Budget
The Chancellor is under mounting pressure to find credible ways to revive growth and close a £20–30 billion hole in public finances following the OBR’s downgrade of UK productivity. Treasury sources say Ms Reeves hopes that trade deals, planning reform, and renewed energy investment could restore confidence.
As the November 26 Budget approaches, the decision on the windfall tax will test Labour’s ability to balance fiscal responsibility with its climate commitments and to reconcile competing priorities within its own Cabinet.
