Burnham should review harmful windfall tax
It is a basic rule of economics that the more something is taxed the less there is of that thing. Therefore, an increase in tax on tobacco will lead to a reduction in the number of cigarettes being bought.
In a similar way, an increase on taxes on jobs, through employers’ National Insurance contributions for example, will have a negative impact on the employment market.
The North Sea oil and gas industry has been labouring under the Energy Profits Levy (EPL), or windfall tax, since 2022 following Russia’s invasion of Ukraine.
The levy means the overall tax rate on profits earned by oil and gas companies operating in the UK is an eye-watering 78 per cent.
Clearly this is a significant disincentive for operators in the North Sea and the economic impact has been as predictable as it has been in the cases cited above – most obviously in Aberdeen and the north east.
As he begins his tenure as prime minister today, Andy Burnham is widely expected to announce new plans for drilling.
Labour deputy leader Lucy Powell said yesterday there would a “change of emphasis” and a “more pragmatic approach” regarding oil and gas during Mr Burnham’s premiership.
“We’ve been really clear that the way to achieve in the long term energy security and lower bills is by ensuring that we do have our own homegrown, clean, much cheaper energy,” she said.
It seems increasingly likely that plans to develop North Sea fields at Rosebank and Jackdaw will at last be given the go-ahead. However both applications are subject to consultations that have not yet closed.
Mr Burnham could help the sector more immediately by lifting the windfall tax as he begins his premiership.
The move would come as welcome relief for the beleaguered sector, the north east, and for the UK economy more generally.
And it would indicate Mr Burnham is serious in his stated ambition of providing “breathing space” on the cost of living while facilitating economic growth.