Keir Starmer’s government should reconsider its tax on oil and gas firms in the North Sea, according to the think tank run by former Labour Prime Minister Tony Blair. 

Imposing high taxes on fossil fuel profits means ministers take “a political hit” without any obvious benefits to the climate, said Tone Langengen, senior policy adviser for climate and energy policy at the Tony Blair Institute (TBI.) 

The TBI has also previously urged the government to shelve its green targets for 2030 and warned that Energy Secretary Ed Miliband’s net-zero push is “doomed to fail.” 

The Energy Profits Levy (EPL), known as the Windfall Tax, was first imposed on the profits made by North Sea fossil fuel firms after energy prices soared following Russia’s invasion of Ukraine in 2022. 

“There is no reason why we should shut off future revenue when it has no, kind of, climate benefits,” said Langengen, when asked about the EPL. 

It has since been hiked by both Conservative and Labour ministers, creating an effective 78 percent rate until 2030. Chancellor Rachel Reeves resisted attempts by industry lobbyists ahead of November’s budget to get the levy ditched. 

The Office for Budget Responsibility now forecasts that the Treasury’s tax take from the North Sea will slide from £2.7 billion in 2025/26 to £300 million in 2030/31. This was “primarily due to the expected continued fall in oil and gas production and the expiry of the EPL in March 2030,” it said.

The Windfall Tax is “a good example of where increasing taxes too much means it [the Treasury] gets less,” Lanengen argued. 

“You’re then basically taking both a kind of fiscal hit and you're taking a kind of political hit with the workers who [are] affected ... for what I can see is no climate gain whatsoever,” she said. 

In October, a TBI report said that while falling oil and gas production in the North Sea is primarily driven by natural decline, “policy has also played a role.” The tax, alongside banning new exploration licenses, “has driven capital out of the basin,” it said. 

A government spokesperson said: “We’re giving the sector and its investors the long-term certainty to plan, invest and support jobs with plans to replace the Energy Profits Levy when it ends by 2030, or earlier if its price floor is triggered.” 

Original article   l   KeyFacts Energy: Commentary