(1 day, 18 hours ago)
Commons ChamberRead Hansard Text Watch Debate Read Debate Ministerial Extracts
Harriet Cross (Gordon and Buchan) (Con)
I secured this debate because what is happening in north-east Scotland simply cannot go on. Hundreds, if not thousands, of jobs are being lost on a regular basis across our region from the world-class energy sector that we are so proud of, not least because of the energy profits levy. These are geologists, engineers, technicians and project managers—highly skilled workers who are nothing but of value to the UK—but they are also people with mortgages, people with families and people who have given decades to an industry that this Government are now destroying through deliberately punitive policies.
Offshore Energies UK warns that, largely because of the EPL and other Government policies on the North sea, almost 1,000 direct and indirect jobs will be lost every month. That is 1,000 livelihoods, 1,000 mortgages and 1,000 families facing uncertainty every single month. OEUK also projects that 42,000 jobs are at risk between now and 2030. Energy workers in north-east Scotland feel like they are on borrowed time. No one really celebrates when they manage to survive a round of job cuts, because they know it is likely just to be short-term relief, with more cuts coming soon.
The energy profits levy was introduced in 2022, at a time when oil and gas prices were spiking after Russia invaded Ukraine. At that time, Brent crude peaked at over $130 a barrel and averaged $99 a barrel in 2022. Similarly, in 2022, gas peaked at 640p a therm and averaged 165p a therm that year. Let us compare that with this year. In August 2025, Brent averaged $71 a barrel and gas 81p a therm. That is a 28% and a 51% drop on the 2022 averages, and oil this week is at a six-month low. The energy profits levy has ceased to be a windfall tax. The windfall has gone, and the prices have returned to normal levels. The Competition and Markets Authority found that in 2025, oil markets are now relatively stable, and exceptional circumstances seem to have receded.
Madam Deputy Speaker (Ms Nusrat Ghani)
Mr Shannon on the north-east of Scotland.
Jim Shannon
Madam Deputy Speaker, I spoke to the hon. Lady beforehand to ensure that I was here to support her in what she is trying to achieve in north-east Scotland. It is very important that we add our support to her.
Does the hon. Lady agree that while investment in tidal energy has not produced the desired result of sustainable, reliable energy, the levy on energy profits has achieved a result that is absolutely undesirable and is seeing investment in our countries being moved to the USA and other regions with a more favourable approach? Does she also agree that the economic black hole cannot be filled by more levies but must be filled by investment in our businesses and creating future job security? I commend her.
Harriet Cross
I completely agree with the hon. Gentleman. I will come on to talk about the drain of investment and other things from north-east Scotland because of the levy. It feels as if it is a particularly punitive tax on north-east Scotland, given that our region is the energy hub of the UK.
Even though the windfall no longer exists, at the Budget last year the Chancellor still decided that she would increase the EPL from 35% to 38%, giving a headline tax of 78%.
Harriet Cross
The Chancellor also extended the levy until March 2030. Just to ensure that the industry was hit from all angles, she abolished the investment allowance, removing the very mechanism that keeps companies investing.
Torcuil Crichton (Na h-Eileanan an Iar) (Lab)
I pay tribute to the hon. Lady for securing the debate. I share her passion for her constituents and their work in the North sea, because my constituents, over three generations, have done the same work, and I want to see people working in the North sea for another three generations. Does she accept that some 77,000 jobs in the North sea went on the watch of the last Government, and that the move from fossil fuels to renewables is inevitable and must be managed by things like passporting people into jobs?
We must be honest about the fact that offshore jobs are dangerous. I pay tribute to the people who have gone out there for the past 50 years to earn our energy security. The danger that they put themselves in is simply not the same in the renewables sector. Does she accept that we must balance the move from gas and oil in the North sea to renewables in the wild Atlantic, probably, with a managed transition that looks after our communities? However, that does not make it an either/or question of having either carbon from oil and gas in the North sea or onshore and offshore renewables. We can and will do both, and this Government should be committed to both for another 40 years.
Harriet Cross
I completely agree with the hon. Gentleman. At no point have I ever said that we should be persisting with oil and gas at the expense of renewables. We 100% need both, but both means both sides: we do not need to tax the oil and gas industry out of existence in the North sea in order to scale up renewables, because that will do the exact opposite, as he knows. I appreciate his point that jobs have been lost in the past—I know that because I live in the north-east of Scotland—but what happened to oil and gas prices during that time? Were they at a peak or in a trough? They were in a trough but they are now not, yet we are still seeing jobs cut and production decreasing faster than it needs to because of decisions made by this Government.
Andrew Bowie (West Aberdeenshire and Kincardine) (Con)
I commend my hon. Friend on her speech and on securing the debate. As she knows, this issue is also felt incredibly keenly in the neighbouring constituency of West Aberdeenshire and Kincardine, which I represent. While the debate about whether it is renewables or oil and gas is a false one, the fact is that skilled workers, whose jobs are being lost in the North sea right now, are the exact workers who we will need in the future to deliver cleaner energy and a more sustainable future. Those jobs do not exist in the UK right now, and they are being lost to the United Arab Emirates, Riyadh, Australia, Mexico and Canada. We need to do what we can to maintain those jobs in north-east Scotland by supporting our oil and gas industry and removing the punitive energy profits levy, which is driving people away from the country and driving companies to make redundancies.
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. I remind Mr Bowie that Front Benchers do not intervene from the Front Bench in Adjournment debates.
Harriet Cross
I agree that we want to keep the workers that we have, and the skills and expertise that they have developed, in north-east Scotland because they are of huge value to north-east Scotland. They will not stay in north-east Scotland out of virtue but only if the jobs are there for them and it makes economic sense for the companies to keep them there. That is not what is happening at the moment, and we are losing a crucial asset to our energy transition at an extraordinary rate.
Graham Leadbitter (Moray West, Nairn and Strathspey) (SNP)
The loss of skills impacts investor confidence in the North sea. That investor confidence is directly linked to investor confidence in renewables, given the lack of availability of skills that will result. Does the hon. Lady agree that the Government need to give an end date for this so-called temporary measure as soon as possible, and that that needs to be implemented as soon as practicably possible?
Harriet Cross
Exactly—I thank the hon. Member for that intervention. On that point, I will skip forward a little bit to my first question to the Minister, which is when the Treasury will publish its consultation outcome on the future fiscal regime for the North sea, and whether the Government will wait until 2030 to implement that new regime, or whether they will implement it straightaway. Investment decisions worth billions are being put on hold waiting for that answer. They need to know a month, or ideally a week—not just a vague “in due course”.
Capital investment forecasts for the North sea have fallen by 84%, from over £14 billion to £2.3 billion for the period 2025 to 2029, and Offshore Energies UK calculates that £26 billion of economic value will be lost under Labour’s EPL extension. Some 90% of OEUK’s member companies are now seeking opportunities overseas, and Aberdeen and Grampian chamber of commerce agrees, warning that the EPL is
“eroding investor confidence and driving capital to rival overseas regions.”
Shell’s finance chief has called for certainty and a “stable environment”, noting that the UK’s 78% tax rate is “larger than most” other countries and makes it difficult to have confidence in long-term investments.
Although Norway, which the Government love to use as a comparison, has a similar tax rate, the Government know that this is a false comparison, because Norway also offers full capital cost deductions. It refunds almost 72% of losses to companies and gives a 24% uplift on investment over four years. The result is that Norway attracts 3.8 times more investment than the UK into the same mature North sea basin. Norway’s North sea will see around £35 billion in exploration and production investment through to 2030; ours will see just £10 billion.
John Cooper (Dumfries and Galloway) (Con)
I am from the south-west of Scotland, which is as far from the north-east as one can get in Scotland. None the less, this is a huge issue for the whole country. My hon. Friend is making a point about the North sea basin being mature. We always hear that—it is mature, it is declining—but the Norwegian investment is exploiting areas of gas and oil that previously would not have been accessible. New techniques such as horizontal drilling are delivering huge benefits for the Norwegian economy; we are denying ourselves those benefits. Is that not the case?
Harriet Cross
It is absolutely the case—my hon. Friend is completely correct. We are forgoing so many opportunities in the North sea to secure energy for our country and safeguard the skills and jobs that we will need for the transition. There are endless opportunities that, for some reason, we are willing to leave under the North sea.
That brings me to my second question for the Minister. Does the Treasury recognise the damage that the EPL is doing to the North sea? We know that the decline in the North sea did not start with the EPL—it is a mature basin—but the EPL is accelerating that decline. Its ripple effects go far beyond the energy producers themselves. The supply chain is haemorrhaging jobs. Hunting in Aberdeenshire laid off 143 employees; Wood Group cut 200 jobs last year; Belmar Engineering entered liquidation this year, with 48 redundancies; Beam in Westhill collapsed, with 100 jobs lost; Well-Safe Solutions cut about 45 jobs; and Harbour Energy has cut 250 jobs, which is 25% of its onshore workforce. I keep coming back to the words that the Chancellor said when Harbour Energy announced its job cuts earlier this year and cited the EPL as a principal factor. She said that this was just
“a commercial decision by one company”,
but the list I have given—which is not exhaustive—is evidence that that is not the case. It shows that the Chancellor either does not understand, or does not want to understand, the impact the EPL is having.
As I am sure other Members do, I regularly visit companies in the north-east of Scotland whose order books for offshore work have completely dried up, forcing them to adapt their business models to other sectors just to keep afloat. Many of those companies do not know whether they will be here in 12 months’ time. They are not hiring, they are struggling to justify investments, and in many cases, they can do nothing more than hope for a change in Government policy. These companies are owned, grown and run by some of the most innovative and entrepreneurial people I have ever met. They are not afraid of branching out or trying new things—they have done so for their whole business careers—but they are being backed into a corner and are running out of options.
The irony is that this policy is failing on its own terms, in shrinking the very economic activity that it seeks to tax. The Office for Budget Responsibility originally forecast that the energy profits levy would raise more than £65 billion between 2023 and 2028, but the revised forecast is £21.1 billion. We are on track to miss the target by £44 billion, and revenue from the EPL fell from £4.2 billion to £2.7 billion between 2022-23 and 2024-25. His Majesty’s Revenue and Customs figures show that revenues from oil and gas production were down 27% last year.
When did the Treasury last carry out an impact assessment of the EPL’s impacts on production, jobs, economic activity and tax receipts? Have those assessments been revisited following those recent HMRC figures showing the downgraded forecast? Forecasts show that the policy could ultimately cost the Treasury £12 billion in lost revenue by 2050. We have reached the point where the level of taxation means less money. The Government are taxing the North sea so heavily that tax revenues are being lost. We cannot tax jobs that no longer exist, we cannot tax production that no longer exists and we cannot tax businesses that no longer operate in the UK.
There is something else that the Government are ignoring. From the early 2030s, the Treasury will face a £2 billion to £3 billion cost each year in decommissioning rebates, a decade earlier than expected. The premature shutdown of fields, driven by the EPL making them too unviable to continue, makes that liability ever more imminent.
The policy is also undermining our energy security at a time of global instability, suppressing domestic oil and gas production and increasing our dependence on foreign imports. We are now 42% dependent on energy imports. By 2030, it is projected that our reliance on imported gas will increase to 80%, and our liquefied natural gas imports have increased by 40% in the past year alone. Those changes are partly down to geology, but the decline is accentuated by the punitive tax regime for companies operating out of the North sea.
Estimates suggest that there could be 7.5 billion barrels of oil equivalent remaining in the North sea that could be recovered with the right investment. We could cover half our energy needs to 2050 with North sea reserves. If we drive investment away, we will leave that resource untapped, only for imports from elsewhere to cover them. That is a huge loss of economic opportunity for the north-east of Scotland and the UK as a whole.
That brings me to my final question, and I will soon conclude. Will the Treasury please commit to de-linking oil and gas pricing in the energy security investment mechanism so that both commodities are assessed on their individual market conditions? Time is running out, and that is not an exaggeration. Every month of inaction means another thousand jobs gone. Every delayed investment decision means less energy security for Britain. Every skilled worker who leaves to go overseas is one we will struggle to get back when we need them for the energy transition.
I and, more importantly, the oil and gas sector have four questions for the Minister. First, when will the consultation outcome be published? Secondly, does the Treasury recognise the damage it is inflicting? Thirdly, when was the last impact assessment carried out by the Government? Fourthly, will the Government de-link oil and gas in the energy security investment mechanism? The north-east of Scotland has powered Britain for 50 years. We have contributed hundreds of billions in tax revenues. We developed expertise that is renowned around the world. We have so much more to offer to meet the UK’s current and future energy needs, but only if we are given the chance. Scrapping the EPL is a vital part of that chance.
The Exchequer Secretary to the Treasury (Dan Tomlinson)
Let me first congratulate the hon. Member for Gordon and Buchan (Harriet Cross) on securing this debate. I thank Members from all parts of the House for their contributions so far; I am sure there will be more interventions in the coming 15 minutes. I say to the hon. Member that it is clear how strongly and firmly she seeks to represent her constituents and those of her neighbour, the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie), as a resident in north-east Scotland. That comes across clearly in the House.
The UK oil and gas industry plays a significant role in our country, just as it has for more than half a century. Alongside its contribution to our energy supply, it has provided more than £400 billion in production taxes since the late 1960s and created thousands of jobs in the hon. Lady’s constituency and in many constituencies in that part of Scotland and across the country.
As we head towards a net zero future, the industry and the region will continue to play a vital role in the energy transition, with which I know the sector is keenly engaged. Between 2018 and 2024, the sector has acted to reduce its emissions by 34%, and we are seeing oil and gas companies make record investments in carbon capture, usage and storage on land and in offshore wind at sea. I agree with the hon. Member for Gordon and Buchan that it is not an either/or; we must have a managed transition in which we do all that we can to protect jobs and industry, and to grow new jobs and industry too. We are all pulling in the same direction; Government and industry are committed to a fair, orderly and prosperous transition for the region, and I am grateful for the opportunity to speak about that today.
The aim of our tax regime for the exploration and production of oil and gas in the North sea is to support investment in this vital resource, while ensuring that the country obtains a fair return in exchange for the use of an important national asset. I am sure the hon. Member for Gordon and Buchan will be very familiar with the tax regime, and I am sure that everyone else in the Chamber is, but let me set it out for the benefit of those who may not be. The regime today includes a ring fence corporation tax that is charged at 30%, the supplementary charge at 10% and, yes, the temporary energy profits levy at 38%. As the hon. Member mentioned, that was introduced amid near-record-high prices following the recovery from covid and Russia’s invasion of Ukraine.
While we pursue our net zero targets, we must ensure that we meet the country’s energy needs. That involves energy from overseas alongside our own new nuclear, wind and solar, and, of course, domestic oil and gas. With domestic gas production, net of imports, accounting for the equivalent of about a third of UK gas demand, our oil and gas industry supports more than 100,000 jobs, and will continue to play a significant role in our energy mix for decades to come. In supporting those jobs and the important contribution of the sector, our approach to taxation is, in my view, both responsible and proportionate. We believe in the ongoing contribution of the oil and gas industry and its skilled workforce, and the sector continues to benefit from £84.25 in tax relief for every £100 of private investment, with more relief available for decarbonisation-based investments.
The oil and gas sector is expected to contribute about £16 billion in tax receipts between this financial year and 2029-30, which is roughly equivalent to the entire year’s NHS Scotland budget. The energy profits levy alone has already raised more than £11 billion since its introduction. Yes, that is less than was forecast at the time, but in a way that should be welcome news for the hon. Member, because it means lower energy bills for people up and down the country who are affected by the cost of living—families in her constituency, and in mine.
Harriet Cross
What lower revenues from the EPL mean is that oil and gas companies are not investing in the North sea, that production is falling in the North sea, and that, for example, revenues from income tax—which the Scottish Government might quite like—are falling as well. There is nothing welcome about the Government not meeting their forecast. It is complete madness even to believe that.
Dan Tomlinson
If the hon. Member would have preferred energy prices to stay at their pandemic levels, and money to continue to flow in from the EPL rather than more people throughout the country receiving lower energy bills, that is, of course, a view that she is welcome to hold.
As I was saying, the levy has raised more than £11 billion since its introduction, and is forecast to raise a further £11 billion by 2030. That revenue provides vital funding for our public services, creating sustainable jobs, strengthening our energy security and independence, and supporting the energy transition.
The Government are committed to giving the oil and gas industry long-term certainty and confidence in the fiscal regime. The energy security investment mechanism is the price floor within the EPL, and that gives the sector certainty that if oil and gas prices fall for a sustained period, the EPL will cease. That remains Government policy. The hon. Member asked whether the Government intended to de-link, but the Government policy is to stick with ESIM as it stands.
I know that Members have expressed concern about the approach to tax and how it affects investment in the oil and gas sector, but we have seen capital expenditure in the sector rise from around £4 billion in 2022 to around £6 billion last year. That is why we introduced pragmatic reforms to the levy at the autumn Budget 2024 and refrained from going further than abolishing the levy’s investment allowance, helping to support the sector’s competitiveness. I want to restate to the House today that the EPL will end no later than 31 March 2030.
Working with the sector and stakeholders, the Government published the oil and gas price mechanism consultation on 5 March to give long-term certainty on the future fiscal regime, developing an approach for how we respond to unusually high prices once the EPL ends. As the hon. Member knows, the consultation closed earlier this year. The Government are now hard at work analysing submissions and suggestions, and we will publish our response—I will not say “in due course”; I will say “shortly”. I know that the sector wants certainty from the Government as to what will follow on from the EPL. I hear that, and I am meeting members of the sector this week to hear it directly from businesses. I want this to happen as soon as it can, but I hope the hon. Member will understand that it is not quite in my gift unilaterally to announce the dates and the precise timetable on the Floor of the House.
I understand that there is a need for certainty, and the Government understand just how important that is for businesses and workers in the sector. I reassure the House that it is definitely not our intention to wait until the EPL is about to cease before bringing in new legislation to provide that certainty. I want us to bring forward the necessary legislation for the new mechanism as quickly as we reasonably can, to ensure a smooth and orderly transition for the sector. That is hugely important, and for as long as I am in this post I will do all I can to make sure that we can do that; I hear the points made by Members on both sides of the House.
The Government are already delivering a fair and orderly transition in the North sea. Across the country, we are driving growth and securing skilled jobs for future generations, and that is just as true in the North sea, where we have seen unprecedented levels of investment in offshore wind and where this Government have signed contracts for two first-of-a-kind carbon capture and storage clusters. This endeavour also includes Great British Energy, which, from its headquarters in Aberdeen, will create thousands of jobs across the country, invest up to £1 billion in clean energy supply chains and, as a publicly owned energy company, ensure that the clean energy revolution is built in Britain. Alongside that, the Office for Clean Energy Jobs will work to ensure that we have the skilled clean energy workforce to deliver those goals, so that this investment unlocks thousands of new jobs, kick-starts growth in communities and industrial towns, and secures a cleaner and more independent energy future for the UK.
Graham Leadbitter
A number of skilled jobs are going out of the North sea, and many of these workers will go to other countries—that was the point made by the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie). That is not sustainable for the skills transfer into the offshore renewables sector, and it is denting investor confidence. There is a serious risk that the build-out of offshore renewables will not go fast enough if investor confidence disappears because of skills loss. It is hugely important that the EPL is addressed as quickly as possible to prevent that from continuing.
Dan Tomlinson
As I said just a few moments ago, 100,000 jobs are directly or indirectly linked to the work and activities in this sector, and it is vital that we support people with that transition. In the long-term, carbon capture and storage alone is expected to support 50,000 skilled jobs by 2050 as we move towards a clean energy transition. I am acutely aware—I have heard it from Opposition Members, and I am sure that I will hear it from my hon. Friends in a second—that we must get the balance right between the timing of phasing out and winding down production in the North sea, and ramping up the clean energy and good jobs that we need for the future. We have to do all we can to protect the sector.
Dan Tomlinson
I will first take the intervention from my hon. Friend the Member for Edinburgh South West (Dr Arthur).
Dr Arthur
I thank the Minister for giving way, but I note that he took my intervention second rather than first—I am not offended!
On the position in Scotland, it is worthing remembering that Scotland’s Deputy First Minister said at the SNP party conference at the weekend that the Scottish Government want to scrap the EPL—sorry, I meant they want to replace it with something else. But, of course, she did not say what that something else was; it is slightly cowardly not to define that detail.
The Minister was talking about the strength of the renewables sector in the UK and how it is growing under this Government, and we all appreciate and welcome that, but that sector also needs continuity and a stable framework to work within. Does he therefore share my concern about the Opposition taking the decision to ditch the Climate Change Act, which has really unsettled the whole industry?
Dan Tomlinson
I believe the hon. Member for Moray West, Nairn and Strathspey (Graham Leadbitter) was slightly quicker in standing up than my hon. Friend.
I do understand my hon. Friend’s points. It is very important not to be cowardly in politics, which is why I will make sure that we come forward as fast as we can to set out the approach after the EPL is set to end. This Government, under the leadership of a whole range of Cabinet Ministers, is making sure that we can provide that long-term certainty, not chopping and changing when it comes to our policies on net zero.
The hon. Member for Gordon and Buchan mentioned energy security, which links to the challenge we have with energy bills. It is worth recognising the truth that, even if we extracted every single drop of oil and gas in the North sea, that would not make any material difference to people’s energy bills or the prices that people pay at the pump. Oil and gas are traded on international markets, and given the declining basin on the UK continental shelf, domestically produced oil and gas do not do anything to reduce prices. In fact, it is our reliance on oil and gas that leaves British consumers exposed to unstable fossil fuel markets.
In closing, this Government are determined to provide a balance—
Dan Tomlinson
Does the hon. Member really wish to intervene? [Interruption.] Go on.
John Cooper
I thank the Minister for giving way on that point: this is about balance. We need to find a balance in the transition of people coming out of oil and gas and moving into renewables. The difficulty is that we cannot say to these highly-skilled people that there is a great job for them in renewables but it is going to be 10 years down the line. That is no use to them at all: they have bills to pay and families to feed. The balance is out of kilter, and I am afraid that the Government are getting this wrong.
Dan Tomlinson
I disagree that the Government are getting this wrong. We are doing our best to try to find the right balance to support people, industry and jobs.
We will continue to provide a balanced, responsible and predictable regime for the UK oil and gas industry, which I hope will continue to drive growth, support workers and communities, protect our energy security and ensure a prosperous future for the North sea as we make our way towards net zero. Our commitment, and my commitment as a Minister, to the future of the North sea is clear, and I will continue to engage closely with the industry, workers and Members across the House on this important issue.
I again thank the hon. Member for Gordon and Buchan for securing this important discussion, and I thank Members from across the House for their contributions.
Question put and agreed to.