Incoming Prime Minister Andy Burnham has been urged to honour Labour's commitment to replace the Energy Profits Levy after oil prices returned to the level that prompted the Government to pledge an early end to the windfall tax.
In March, Chancellor Rachel Reeves told North Sea operators she wanted to end the Energy Profits Levy in 2027 – three years earlier than planned – and replace it with the permanent Oil and Gas Price Mechanism.
However, plans to announce the move were put on hold after the United States launched strikes on Iran, triggering a sharp rise in oil prices amid fears of disruption to supplies through the Strait of Hormuz.
At the time, a Treasury source briefed: 'The Chancellor was clear with industry that she wants the Energy Profits Levy to come to an end. She has made that promise and she stands by it. Indeed, it was a commitment she wanted to make this week. But the crisis in the Middle East has had real-time consequences on oil and gas prices and it is right that we respond to this.'
Those concerns have now eased. Brent crude fell to $71.80 a barrel yesterday – its lowest level since the conflict began and back around the level seen before hostilities erupted – as traders responded to signs that a ceasefire will hold and shipping through the strategic waterway will continue.
Russell Borthwick, Chief Executive of Aberdeen & Grampian Chamber of Commerce, has now urged incoming Prime Minister Andy Burnham to honour the Chancellor’s promise to industry - and unlock additional funding for his priorities in government.
He said: 'The Chancellor made a clear commitment in March that the Energy Profits Levy would end early when market conditions allowed. The spike in oil prices caused by the conflict with Iran understandably delayed that announcement, but those prices have now returned to pre-war levels.
'The incoming Prime Minister should turn that promise into action and create a win-win for industry and his spending plans. The Oil and Gas Price Mechanism was co-designed with industry and would unlock £17.5 billion of near-term investment that the economy desperately needs. It would safeguard thousands of highly skilled jobs, protect Britain's sovereign industrial base and restore the confidence needed to invest in both energy security and the transition.'
'Crucially, replacing the windfall tax with the Oil and Gas Price Mechanism would deliver a permanent windfall for the public finances by unlocking investment rather than deterring it. That would generate billions of pounds in additional tax revenues over the years ahead. With ministers looking for ways to fund public spending and plug the reported £15 billion defence funding gap, this is a credible, pro-growth solution that strengthens the public finances without asking working people to pay higher taxes.'
Source: Aberdeen & Grampian Chamber of Commerce
