The industry body for the North Sea has called for the Chancellor to reform a controversial tax policy in her autumn Budget.
The North Sea oil and gas sector could disappear “within years, not decades” if Chancellor Rachel Reeves does not reform the windfall tax in a move that could boost the economy by £137 billion by 2050, according to industry leaders.
The warning from trade body Offshore Energy UK (OEUK) comes as UK Conservative leader Kemi Badenoch vowed to remove all regulations other than “maximum economic recovery”, matching Nigel Farage’s Reform UK’s pro-fossil fuels stance.
Ms Badenoch will deliver a speech in Aberdeen on Tuesday pledging that if the Tories form the next UK government she will scrap any net zero requirements of the North Sea oil and gas sector and allow companies the ability to extract every drop from the basin.
The commitment comes amid growing pressure from the industry on Keir Starmer’s Labour UK government over the windfall tax.
Ahead of the start of its conference in Aberdeen this week, OEUK has released a report claiming replacing the energy profits levy next year with a profits-based mechanism could increase investment and output in the North Sea.
The UK government has previously said the windfall tax – which currently sits at 38 per cent – would be scrapped in 2030, or potentially earlier if oil and gas firm profits fall below a certain level.
The replacement, OEUK has said, would be triggered by “unusually high prices” and would be levied against excess profits.
According to the body’s chief executive David Whitehouse, a failure to change could result in the oil and gas sector in the UK disappearing “within years, not decades”, while the country still relies on fossil fuels for energy.
He said: “Our paper lays bare the choices facing the Chancellor when it comes to domestic oil and gas taxation.
“We are saying reform the energy profits levy to boost national energy production, investment, unlock 23,000 jobs, and add over £137 billion to communities – or keep the tax, gain short-term revenue, and risk the North Sea industry’s collapse.
“Without changes to the fiscal regime, UK oil and gas could disappear within years, not decades. That’s a risk we cannot take.
“We have a range of credible sources showing we will need between 10-15 billion barrels of oil and gas while still meeting UK net zero goals.”
Mr Whitehouse added: “UK producers are only lined up to produce about 4 billion of those, and even that target is now at risk.
“Today, 85 per cent of homes are heated by gas, and while electric vehicle uptake is growing rapidly, around 23 million vehicles on our roads still rely on petrol and diesel.
“By making the most of our homegrown oil and gas while accelerating renewables, the UK can turn one of its greatest assets – the waters around its coast – into a strong driver of economic growth. We need both oil and gas and renewable energy.
“Changing the energy profits levy would allow UK oil and gas operators to continue paying higher taxes when prices are high, while giving them the confidence to invest, knowing those taxes will adjust fairly when prices drop.”
Ahead of the autumn budget, OEUK has said the announcements need “big ideas and ambition” to “build a homegrown energy future”.
The appeal comes as Mrs Badenoch pledged she will “scrap all mandates for the North Sea beyond maximising extraction”.
She will use the speech in Aberdeen to state she is “calling time” on the “unilateral act of economic disarmament” of Labour and the SNP pursuing a just transition and back away from the “impossible ideology of net zero by 2050”.
The Tory leader’s comments are in line with her predecessor Rishi Sunak, who used a visit to the North East in 2023, while he was prime minister, to call for North Sea resources to be “maxed out”.
But the details mark Mrs Badenoch’s biggest departure yet on net zero, and come amid pressure from Mr Farage,Reform party, which has called for the net zero strategy to be torn up.
Sir Keir Starmer’s government has vowed to continue the policy of striving to achieve net zero by 2050 and to end the issuing of new oil and gas licences.
Four years ago, former first minister Nicola Sturgeon ended the Scottish Government’s support of maximum economic recovery, insisting that “we must accept that unlimited recovery of hydrocarbons is not consistent with meeting the aims of the Paris Agreement”.
Mrs Badenoch is expected to vow to abolish all environmental restrictions on fossil fuel extraction.
Although the Conservative leader has suggested a move away from the UK’s net zero strategy, a stance shared by Scottish Tory leader Russell Findlay, this would mark her clearest move away from the policy yet.
Scottish Conservative deputy leader, Rachael Hamilton, said she supported Mrs Badenoch’s position and insisted it was “nothing to do with anything Reform is saying”.
Mrs Badenoch is expected to announce the Tories intend to completely overhaul the North Sea Transition Authority (NSTA), which oversees the issuing of licences.
The party would delete the entirety of the NSTA’s current 12-page mandate and replace it with a single instruction to “maximise the extraction of our oil and gas” and remove the word “transition” from the body’s title, which was added by Mr Johnson in 2022.
Mrs Badenoch said: “We are in the absurd situation where our country is leaving vital resources untapped whilst neighbours like Norway extract them from the same seabed.
“Britain has already decarbonised more than every other major economy since 1990, yet we face some of the highest energy prices in the developed world.”
She added: “This is not sustainable and it cannot continue. That is why I am calling time on this unilateral act of economic disarmament and Labour’s impossible ideology of net zero by 2050.
“So, a future Conservative government will scrap all mandates for the North Sea beyond maximising extraction.
“It is time that common sense, economic growth and our national interest came first, and only the Conservatives will deliver that.
“We are going to get all our oil and gas out of the North Sea.”
Scottish Greens co-leader, Ross Greer, said Ms Badenoch’s proposals were “simply imitations of Nigel Farage and Reform UK’s climate denialism”.
A Treasury spokesperson said: “We know that oil and gas will be with us for decades to come and are managing the transition to clean energy in a balanced way that supports communities.
“This includes Great British Energy, which has already announced £1 billion in investment in British supply chains, unlocking significant investment and helping to create thousands of skilled jobs.
“The Energy Profits Levy will end by 31 March 2030, and we are working with the sector to explore how firms can continue to invest and pay their fair share of tax.”
“From our platform to LinkedIn’s energy professionals – your announcements reach the entire sector’s network, not just our readers.”
