Conservatives vow to end oil and gas windfall tax
Kemi Badenoch will call for an end to the oil and gas windfall tax, in addition to scrapping Labour’s ban on new oil and gas licences, as she seeks to bolster her pro-growth credentials.
The Tory leader is expected to announce her party will be “standing up for our oil and gas industry,” in an address to the Scottish Conservative and Unionist Conference on Friday.
Badenoch will be appealing to Scottish Conservatives with her case, as Scotland produces the bulk of oil and gas; in 2019, it produced £22bn-worth – 82 per cent of the UK total.
“For decades, Aberdeen and the North East have been the energy capital. Not just of the UK, but of Europe,” Badenoch will say, before vowing to “champion” the industry.
Windfall tax
The latest iteration of the tax came into effect following Russia’s invasion of Ukraine. It was levied on companies that saw their profits balloon after oil and gas prices soared amid global supply shortages.
The tax has been raised to 38 per cent and extended to March 2030 by the current government. This is applied on top of the 30 per cent corporation tax on profits and 10 per cent supplementary rate that oil and gas companies pay if they operate in the North Sea.
In the 2023 to 2024 tax year, the levy raised £3.67bn.
Tories reneging on Tory initiatives
The 25 per cent levy was introduced by then Chancellor Rishi Sunak in 2022, and then raised to 30 per cent in 2023 by Chancellor Jeremy Hunt. Hunt then extended it to March 2029.
This is not the first policy introduced by the Tories which Badenoch has called to scrap. She has also distanced herself from the Net Zero 2050 goal, set under Theresa May’s prime ministership, which Badenoch earlier this year said would be “impossible.”
Badenoch will argue that conditions have changed as when the tax was introduced, “the oil price was near a historic high, at the exact time as energy bills for the British people were sky rocketing.”
Labour ‘taxing industry out of existence’
Now, Badenoch claims “there is no longer a windfall to tax.”
BP’s net income in 2024 was at $8.9bn, a steep drop from the £28bn it reported in 2022. Shell saw profits fall to $23.7bn in 2024 from $39.9bn in 2022.
At £1,849, the average annual bill for typical gas and electricity remains high – 43 per cent higher than it was in the winter between 2021 and 2022.
The Labour party is “killing” the oil and gas industry by hiking this “regressive” tax, according to the opposition leader.
“If it is allowed to remain in place until 2030, as is Labour’s current plan, there will be no industry left to tax,” Badenoch will add.
Badenoch will mention job losses in the industry, as well as the cost of importing oil and gas “from the very same basin in which we are banned from drilling.”
Andrew Bowie, shadow energy secretary and MP for Aberdeen, said earlier this year: “If we shut down our oil and gas industry, we will not use any less oil and gas … we will be simply be relying on more imports instead.”
“If we are importing from Norway, we are shipping in gas from underneath the very same North Sea” he continued.
In lieu of the windfall tax, Badenoch will call for introducing “a system that rewards success and incentivises investment,” though she will not be including any details on what this might entail.
Tory environmentalists give Kemi the green light
The Conservative Environment Network (CEN) – which represents shadow cabinet members such as Victoria Atkins, Saqib Bhatti, Andrew Griffith and Kevin Hollinrake – has given its blessing to Badenoch’s announcement.
CEN director Sam Hall said: “Kemi Badenoch is right to call for the windfall tax to be scrapped. It has damaged energy investment in the UK, when we need more investment for the clean energy transition. Taxing energy companies to fund Ed Miliband’s ideological quango, GB Energy, encapsulates this government’s damaging and statist approach to energy.
“As the North Sea is a mature basin, ending the windfall tax and the ban on new licenses will only slow the rate of decline in oil and gas production.
“To safeguard our energy security, protect jobs and skills in the UK, and grow the economy, there should also be new incentives to encourage oil and gas firms to diversify into clean technologies and retrain their workers.”