With Labour’s windfall tax plan seen as ‘hammer blow’ to UK’s energy security and decarbonization, concerns over job loss on the rise

The dust has not settled yet over the Labour Party’s proposals to extend the windfall tax on UK oil and gas producers, which sparked the industry’s ire earlier this month. Many keep pointing out that such a move will have serious consequences for the British workforce, putting thousands of jobs at risk. This potential job loss is expected to be a direct result of the impact the windfall tax will have on the United Kingdom’s energy security and transition to low-carbon and green sources of supply.

After Labour’s new windfall tax plan to “end loopholes” by extending the windfall tax on UK oil and gas producers – if elected to government – came to light, uncertainty swept across energy companies due to the possibility that the party might remove critical allowances that enable them to make long-term investments in domestic production.

In the wake of Labour’s announcement, Britain’s trade body for the offshore energy industry, Offshore Energies UK (OEUK), issued a warning that 42,000 jobs and £26 billion of economic value would be wiped out under the proposal.

David Whitehouse, OEUK’s Chief Executive, emphasized: “Labour either can’t do the maths or haven’t considered the alarming jobs impact that will be felt up and down the country. With no new investment, 42,000 jobs will go, and we could start to see the effects as early as this year. These are not faceless numbers but decent, hardworking people working across the UK to provide the energy we will need today and in the future.

“The impact of no new investment will be felt across the whole economy – today we estimate the UK will lose £26 billion of economic value. It will undermine the very industry which can and must play a critical role in delivering a homegrown energy transition.”

Britain is determined to come to grips with the double whammy of energy security and sustainability by slashing its emissions footprint and enabling investments in a new wave of projects to ensure the security of supply. During this quest, the North Sea basin is expected to play a key role in helping the country to reach its net zero goals.

With the limited information provided by Labour firmly entrenched in its mind, OEUK went further to point out that the move would likely result in no new investments being made in UK oil and gas projects. In light of this, the impact is expected to be felt immediately, reverberating across the industry since Labour disclosed plans to raise the current 75% windfall tax to 78% until 2029.

This is not the first time that Labour’s proposals have come under heavy fire from Britain’s oil and gas industry, as the party faced a barrage of criticism last year over its plans to ban all new oil and gas developments in the North Sea. No new investment in UK oil and gas production would have a “damaging effect” on jobs across the country, which are said to be needed to deliver “a homegrown energy transition while continuing to support the country’s energy needs today,” based on OEUK’s research.

Currently, 75% of the UK’s energy needs are met by oil and gas while many of the companies producing these hydrocarbons are the same companies spearheading the expansion of offshore energies, including wind, hydrogen, and the development of carbon capture and storage (CCS). Therefore, OEUK is convinced that the windfall tax extension will damage wider investment in such projects, which are planned across the North Sea.

“The Labour party has consistently said it will work in partnership with business and that it has recognised the important role the UK offshore energy sector can and must play in delivering a transition to cleaner energies which leaves no one behind. This announcement was made without engagement with the industry,” underlined Britain’s trade body for the offshore energy industry.

Moreover, OEUK intends to hold – what it describes as – crisis talks with operators on Tuesday, February 20, and supply chain members on Thursday, February 22, over Labour’s new windfall tax proposals. These emergency summits will entail two meetings that are going to take place in Offshore Energy UK’s London and Aberdeen offices as the energy sector’s concerns about the party’s plans continue to grow in proportion.

Commenting on Labour’s windfall tax plans, Humza Yousaf, First Minister of Scotland, stated: “Scotland’s energy sector is crucial to our nation’s prosperity. Our oil & gas workers deserve better than Labour throwing them on the scrapheap & damaging Scotland’s economy. The SNP will continue to invest in the workforce, they are crucial to our just transition to net zero.”

The recent years saw the erosion of energy producers’ investment confidence in the UK, with OEUK highlighting the knock-on damaging impact of the Energy Profits Levy and other economic factors. The tax hike is said to have affected decommissioning progress since the cost of shutting down old installations is not treated as an allowable expense.

Speaking ahead of the meeting, Whitehouse said: “We remain deeply concerned about what Labour’s proposals could do to our people. If we can’t get companies to invest here, there are no jobs. It’s that simple. I’m already hearing from our supply chain and from energy producers that these proposals would deliver a hammer blow to the energy we need today and to the homegrown transition to cleaner energies that everyone in the UK wants to see.

“These meetings will allow us to gather more evidence from employers to put to Labour leadership. As a sector which supports 200,000 jobs, contributes over £20 billion a year to the wider UK economy and has the skills and infrastructure to deliver a homegrown energy transition, we have so much to offer.”

On the other hand, Global Witness, an international NGO, perceives Labour’s U-turn on its £28 billion green pledge as a letdown in the fight against the climate crisis. The NGO underlines that the party’s decision to scrap its policy of spending £28 billion a year on green investments is “a disappointing sign” of what can be expected from a future Labour government.

Alice Harrison, Head of Fossil Fuels Campaigning at Global Witness, remarked: “This capitulation is a real setback for all those hoping that a Labour government would herald a much-needed shift on tackling the climate crisis. Whoever wins the next UK election will preside over a make-or-break moment on climate change.

“This urgently requires the phasing out of fossil fuels and a turbo charging of a green economy founded on renewable energy. Not only will this protect the planet, it will create thousands of green jobs and begin a transformation towards a safer, more equal society.”

Climate and environmental activists claim that new oil and gas production in UK waters will prevent Britain from reaching net zero by 2050. However, an analysis from the NSTA in July 2023 showed that the carbon footprint of domestic gas production was around one-quarter of the carbon footprint of imported LNG.