Labour oil and gas windfall tax ‘will raise £2bn less’ than claimed

Labour's policies would leave Britain 'colder and poorer', says Claire Coutinho

Sir Keir Starmer’s proposed raid on North Sea oil and gas operators will raise as much as £2bn less than claimed by Labour, analysts have said.

Analysts at Stifel said the £6bn sum proposed in Labour’s manifesto would be “impossible to raise” without significantly deterring investment among North Sea producers, while leaving the UK increasingly reliant on foreign gas imports.

The party’s plans to increase the marginal rate on oil and gas windfall levy from 75pc to 78pc was more likely to raise between £4bn and £5bn, Stifel said.

The warning came after Claire Coutinho, the Energy Secretary, said Labour’s policies would leave Britain “colder and poorer”.

Claire Coutinho believes Labour's plans would leave a £4.5bn black hole in public finances - Geoff Pugh for The Telegraph

Writing for The Telegraph on Sunday, Ms Coutinho said Labour’s plans would leave a £4.5bn black hole in public finances over the next 10 years. Labour dismissed the claims as “desperate nonsense”.

Stifel warned that proposals by Rachel Reeves, the shadow chancellor, to remove an investment tax break that allows North Sea producers to offset 91p for every £1 invested against their tax bill would have further repercussions.

Analysts said this would “force production into rapid decline”, leaving far fewer barrels to tax by 2030 and ultimately leading to a lower tax take.

They said in a note to clients: “This creates a multibillion-pound paradox: higher tax rates and lower tax allowances for investment won’t result in higher tax income as reducing the incentive to invest turns the tax from a progressive tax to a confiscatory one.”

More harm than good

While the implications of energy for national security have come under renewed focus since Russia’s invasion in Ukraine, the policy would also do more harm than good in this regard, the analysts said.

They added: “This policy could damage the existing energy infrastructure of the UK without a clear plan to replace it.”

“While the Boris Johnson-esque soundbite of ‘double onshore wind, triple solar power, and quadruple offshore wind by 2030’ sounds great on paper, we see no clear path to delivering this in a way that offsets all of this lower domestic gas production. We therefore see the UK becoming more reliant on gas and power imports in the short-term, not less.”

It would leave the UK reliant on importing 80pc of gas by 2030, up from 55pc currently.

Jobs threatened

Analysts also predicted as many as 100,000 jobs, equivalent to half of the 200,000 workers dependent on the industry, would be put at risk by the tax raid.

The analysts said: “This would harm the skills base needed for the energy transition – for example, the transferable skills between offshore energy, and floating wind farms, carbon capture, and hydrogen production.”

This would threaten to slow down the transition to clean energy, they suggested.

Stifel suggested that Labour could raise as much as £6bn designing its policies differently without disincentivising investment.

Rishi Sunak introduced the windfall tax, or energy profits levy, after Russia’s invasion of Ukraine triggered an energy crisis, leading to oil and gas companies benefitting from record profits.

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