opinion Are Labour’s windfall plans really a ‘death blow’? By Brian Wilson 05/03/24
It was all a bit odd at the Scottish Labour conference last month. A few days earlier, the oil and gas industry was shrieking outrage at Labour for proposing a windfall tax on gargantuan profits.
Yet here was Offshore Energies UK sponsoring the conference ceilidh and engaging in civilised debate with Labour politicians who were equally willing to listen. Exactly as any sensible industry body (or Chamber of Commerce) would do.
More widely, the energy industry – old, new and in-between – was amply represented at business events on the conference fringes; a lot of people were anxious to read political runes and make their case to a potential government.
Many of them attended a session where Jonathan Reynolds, the shadow Secretary of State for Business and Trade, was in the hot seat.
It was all the better for the fact that his interrogator was Liz Cameron, chief executive of the Scottish Chambers, and nobody’s tame question-feeder.
She pressed him on Labour’s windfall proposals and he made clear his door was open to discussions with the industry.
Dr Cameron pursued the reasonable question of why these had not taken place before an announcement rather than after.
His answer was that “things tend to leak” which neither she nor I thought was an adequate response.
Though in the light of the hysteria which ensued, one does wonder who in Aberdeen it would have been safe to raise the subject with in advance of any announcement.
A problem for OEUK is that they are the ultimate boys who cry wolf. There has been no announcement on tax in the past 30 years that was not going to bring North Sea investment grinding to a halt. The job of governments (and oppositions) is to evaluate these claims, rather than swallow them whole.
It is the same now. Raising tax until 2029 to Norwegian levels does not sound like a death blow.
It seems the industry’s objection is more to ending allowances which encourage companies to make what OEUK describe as “long-term investments in homegrown production”.
The OEUK response was, in its own words “based on the limited information provided by Labour”. To me, that sounds like the cue for detailed discussion, with the industry entirely entitled to point out unintended consequences, from its perspective.
While very important to many, it is unlikely to be the issue on which a General Election is won and lost. Anyway, most voters think taxing energy companies sounds like a good idea.
For the North Sea industry to declare war on Labour at this juncture does not make a lot of sense, even if it feels provoked. The SNP’s jump on the bandwagon verged on the comical. Last year they wanted to ban all new investment in North Sea oil and gas. This year, they can’t get enough of it. Last year, they loved windfall taxes. This year, windfall taxes are the work of the devil. I wonder what their Green pals think of this year’s version?
As I have argued here before, the missing element is an overall plan which values what exists in the North Sea and provides a credible approach to transition.
All political parties are trying to ride these two horses without surrendering one to the other. None is making a great job of it.
The new “North Sea 2” paper for Our Scottish Futures, written by Professor Nick Butler makes a valuable contribution to that debate, not least by stressing its urgency. One point he makes should remind Labour that being a potential party of government means its words already matter. So be careful!
Butler writes: “The investment required will only be available if private sector participants have confidence in the stability and continuity of policy and Government support”.
Whatever their other merits, Labour’s recent pronouncements have not contributed to certainty – and at this juncture, that criticism should be taken seriously.
Looking ahead, Butler proposes “a distinctive tax regime for the UKCS with the objective of maintaining and growing activity across the energy sector.”
That sounds like a more productive line of policy development than isolated actions directed only towards oil and gas.
Butler points out that the premature closure of North Sea fields could leave an incoming Labour government with a huge bill to pay. If decommissioning starts earlier than expected, then so too will the costs to the Exchequer.
It is worth quoting this passage from his report: “The risk is that these costs will come much sooner if investors decide that the limited opportunities and the political risks attached to further investment in oil and gas development do not justify any further substantial spending.
“If as a result they choose to initiate the decommissioning process the costs to the Treasury through the next Parliament would be considerable. These risks are already evident”.
I wonder if such considerations were factored in before the announcements on the oil and gas tax regime? It is a question which OEUK might reasonably put to Mr Reynolds when they meet.
Butler argues that Labour’s Great British Energy should play a key role in co-ordinating a transition with existing activity in the North Sea the ally of low carbon technologies rather than pitted in a false conflict with them.
That is exactly the plan which is long overdue and a dialogue with Labour in which OEUK needs to be involved.
In that spirit, they should keep sponsoring the ceilidhs and consign talk of treachery to the political fringes where it belongs.
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