Energy

General election outcome ‘will be felt for decades to come’

Time Stamp: May 23, 2024 11:24 AM
Source Node: 2947109

Republished by Plato

The UK government has announced a date for the upcoming general election, with the energy sector set to become a battleground for debate.

As the UK gears up to hit the polling booths on 4 July, Offshore Energies UK (OEUK) chief executive David Whitehouse said policy decisions made by the new government “will be felt for decades to come”.

With the general election coming earlier than previously estimated, those working in traditional energies and the renewables sector will have questions regarding how their jobs will be impacted.

The Energy Profits Levy (EPL), or windfall tax, has already been a point of contention for the oil and gas sector in the UK, with many bosses coming out to publicly criticise the country’s fiscal regime.

Early last year, OEUK outlined that more than 90% of North Sea oil and gas producers have cut spending since the policy came into play.

The windfall tax was implemented in May 2022 at a 25% rate, then raised in November to 35% – taking the total headline rate of tax for companies in the UK to 75%.

The ‘sunset’ of the levy had initially been set for March 2028. However, chancellor Jeremy Hunt announced an extension to the EPL in the spring budget, bringing the forecast close of the windfall tax to 2029.

OEUK chief executive David Whitehouse at the Port of Aberdeen.

At the time of the extension, Mr Whitehouse said: “Ongoing investment in the North Sea in the UK’s oil and gas resources will play a vital role in supporting energy security and building the energy transition for decades to come.

“This risks being undermined by rumours of further fiscal change. Energy prices are trending down. Now is not the time for further tax increases.”

The year that the policy was introduced, the North Sea’s largest producer of oil and gas, Harbour Energy, said the windfall tax had “wiped out” its profits and it blamed the country’s fiscal regime for recent job cuts.

With this in mind, the energy sector may look to Labour as a more favourable option. However, the party has proposed an even more radical taxation policy for oil and gas producers.

In a briefing note for its ‘Prosperity Plan Policy’, Labour confirmed its manifesto would propose a hike to the tax rate from 75% to 78% – the same as Norway – and “end the loopholes in the levy that funnel billions back to the oil and gas giants”.

Investment incentives

A key difference between Norway’s taxation policy (which traditionally sets a higher rate than the UK) and what Labour has proposed, is investment incentives.

Norway has a number of allowances for firms operating in its waters to incentivise businesses to spend within the country’s borders.

A recent report estimated that the introduction of a higher windfall tax could lead to the loss of 100,000 jobs industry jobs in the North Sea.

Jenny Stanning OEUK director of external relations, said: “We are deeply concerned about any proposals that would put people’s jobs, our energy security and a homegrown energy transition at risk.

“We have always said that when a windfall falls away, so should windfall taxes and wholesale energy prices are now at similar levels to before the invasion of Ukraine.

“We need to create an irresistible investment environment based on stable policy and fair returns.”

Jenny Stanning, External Relations Director for OEUK at FNS

Investment bank Stifel had previously released analysis that estimated 100,000 jobs could be lost under a “worst-case scenario”, which assumed the Labour party committing to no new drilling in the North Sea, which it has not yet done.

“The next government has a simple decision to make. Create an environment for growth and prosperity based on a successful green economy or drive away billions of pounds of private investment and risk jobs with policy uncertainty and delay,” said Yselkla Farmer, chief executive of energy infrastructure trade body BEEMA.

“Whoever wins the upcoming general election, they will need to prioritise a stable policy environment, with clarity from government that allows the innovative, high-impact solutions from industry that will tackle the structural challenges to building a low cost, low-carbon and secure energy system.”

OEUK boss David Whitehouse also drew attention to investment in the move to renewable energies as news broke regarding the date of the general election.

He encouraged “all parties to choose a homegrown energy transition.”

“A transition that safeguards jobs, energy security and accelerates economic growth. Policy decisions made by the new Government will be felt for decades to come,” said Mr Whitehouse.

“This general election campaign is an opportunity for all parties to support our world-class industry and its people.”

Becoming ‘less party political’

In March, Labour leader Sir Keir Starmer announced plans for a publicly owned clean energy company to invest in floating offshore wind.

He set out that the £8.3bn plan to build floating offshore wind farms would be GB Energy’s first investment if Labour wins power.

Previously, Mr Starmer’s party had vowed to ban new North Sea oil and gas licences if it were to win the coming election.

This contrasted with Rishi Sunak’s Conservative Party, which has set out plans for annual North Sea licencing rounds showcasing the different outlooks the two parties have on the role of the oil and gas sector in the energy transition.

Both of the major parties in the UK have received criticism from the energy sector on their policy causing some to argue that businesses should take a more critical outlook.

Energy Industries Council chief urged supply chain leaders to “be less party political” with energy policy as the nation heads for the ballot boxes.

Russell Borthwick, chief executive at Aberdeen & Grampian Chamber of Commerce, said: “Going forward, we need to see policy from all parties which reflects three key points; we need oil and gas, we need the people who produce it, and we need the companies who finance it.

“Oil and gas will still be 20% of our energy mix in 2050 and a net zero scenario. And we need new fields to offset decline, otherwise we will lose 75% of our production inside a decade, leaving us reliant on more energy imports from abroad as well as potential energy shortages.

Aberdeen net zero oil — AGCC chief executive Russell Borthwick

“This is also about people – if you wind down the North Sea too quickly, before jobs and opportunities are available at scale in the renewables sector, then you lose the world class workforce and supply chain.

“That will make what is already an enormous challenge even harder, perhaps impossible. We cannot allow that to happen.

“And finally, you need energy companies to have faith to invest in the long-term future of the UK.

“That means working in lockstep with many of the companies currently producing oil and gas, because they are the ones who will invest the huge sums required to commercialise new technologies. We are not doing a good job of this at the moment, and this must change.”