North Sea Oil Tax Hike to Blow £10 Billion Pound Hole in Budget

The UK government’s decision to maintain windfall taxes and impose drilling restrictions in the North Sea could cost the Treasury £10bn in lost tax revenue by 2030, analysts have warned. Measures championed by Energy Secretary Ed Miliband are already driving oil and gas companies out of British waters, putting considerable strain on Chancellor Rachel Reeves’s upcoming November Budget.

According to research by investment bank Stifel, tax revenues from UK offshore oil and gas may reach just £6bn by 2030, a sharp shortfall compared to the £16.2bn projection made by the Office for Budget Responsibility earlier this year. With a steep 78 percent tax rate, the economics of operating in the North Sea have become unviable for many firms, forcing them to slash investment, decommission platforms and lay off workers at an unprecedented pace.

The UK’s offshore industry supports about 200000 jobs, heavily concentrated in north east Scotland, north east England and Merseyside. As companies retreat, estimates suggest that up to half of these roles could vanish by 2030, undermining Labour’s pledge to offset lost oil and gas jobs with new employment in renewable energy sectors.

Industry officials are sounding the alarm that this approach could lead to the effective disappearance of UK oil and gas production within years rather than decades. The sector is now projected to contribute only around £6bn in tax receipts by April 2030, falling far below previous forecasts. Analysts calculate that the UK has already forfeited more than £5bn in potential tax revenue as production and profits decline.

The windfall tax was introduced in May 2022 following Russia’s invasion of Ukraine, which sent energy prices soaring. Though prices have since reverted to pre-war levels, Labour has chosen to keep the levy in place, prompting a wave of closures. Of around 280 currently active fields, 180 are predicted to shutter by the decade’s end.

Treasury officials have pledged that the Energy Profits Levy will end by March 2030 at the latest. Discussions are underway with industry representatives regarding how the tax system will function after that point, in the hope of sustaining domestic energy production and protecting jobs. However, with rising uncertainties, there are calls for an urgent reassessment of fiscal policy before the UK becomes even more reliant on imported energy.