North Sea output to halve by 2030 under Labour tax proposals, report says

Consultants Wood Mackenzie found that moves to increase windfall taxes would leave the energy industry 'fatally wounded', with many firms expected to go out of business

A handout picture taken on March 9, 2018, released by BP and received in London on November 22, 2018, shows an oil platform in the Clair Ridge oilfield in the North Sea, 45 miles off the coast of ScotShow more

North Sea oil and gas production could halve by 2030 due to the UK government's policies, a new report has warned.

Britain's Labour government has indicated plans to increase taxes and cut investment allowances on the energy industry, which analysts say could do "irreversible damage" to the sector.

Research by energy consultants Wood Mackenzie found that moves to increase windfall taxes would leave the industry 'fatally wounded', with many firms expected to go out of business.

Under Labour's new plans, the UK's energy firms will pay 78 per cent tax from November, after an increase in the energy profits levy (EPL) that was originally unveiled amid the invasion of Ukraine.

Firms also face a reduction in capital expenditure and investment allowances, as well as the closure of tax loopholes when Labour unveils its budget in October.

The report says energy firms have already dramatically scaled back investment ahead of the UK budget and warned that planning in the current environment was "impossible".

Wood Mackenzie said that in light of the lack of information about the EPL, oil and gas companies were planing for it to continue indefinitely and for all allowances to be removed.

"This scenario would wipeout £19 billion or 65 per cent of the UK’s remaining development capex, halve UK production by 2030, and all but eliminate industry cash flows by the 2030s," the report said.

In addition, smaller companies would likely fail through lack of cash flow, potentially leaving the UK government on the hook for future decommissioning costs.

However, the report claims that production would only fall by a third if the EPL expired in 2030 and capital allowances were retained.

Earlier this month, gas exploration firm EnQuest said it had returned to profitability after two years of consecutive losses.

Amjad Bseisu, chief executive of the London-listed firm, blamed the energy levy for its financial losses, saying its application was disappointing in an environment where "no windfall conditions exist".

Mr Bseisu also said the current fiscal regime was causing "irreversible damage" to an indigenous and strategically important UK industry.

Before the recent general election, Britain's Chancellor Rachel Reeves announced plans to plough £8bn into publicly-owned entity called Great British Energy, which will be partly funded by energy sector windfall taxes.

Ms Reeves has promised that oil and gas will be in Britain's energy mix as it attempts to reach its net zero goals.