The truth about oil and gas industry's windfall tax complaints – and why Labour still needs to help it

Within these parameters, the Chancellor has done a decent job and it was certainly a big improvement on last year. Nobody seems to dispute that lifting the benefit cap will take 450,000 children out of poverty. These kids do not have a well-funded lobbying campaign to speak for them but that was the right thing to do.

Raising the National Minimum Wage makes sense by putting more money into low-paid people’s pockets while also incentivising work over benefits. It was under the Tories, not Labour, that we reached the unsustainable position of more than one in five of the working-age population being economically inactive. That has to change.

And so on. Nothing a Labour Chancellor does is going to please the Tory press which objects to any inconvenience visited upon even the wealthiest in the land and no interest group is likely to welcome an increase in tax. But within the options open to her, Ms Reeves eventually struck a decent balance.

READ MORE: Keeping windfall tax was 'right choice', insists Anas Sarwar amid industry backlash

SNP’s inaction on council tax

There are a few actions which raise challenges for Scotland. For example, Ms Reeves started to address council tax inequality by imposing a surcharge on the most valuable properties.

Here, we have valuations from 35 years ago which blatantly advantage the best off, while councils subsist on crumbs. Mr Swinney and co have had 18 years to do something about it and didn’t.

READ MORE: How Chancellor Rachel Reeves missed obvious way to kickstart UK economy

The issue which attracted the most, and worst, Scottish headlines involves the future prospects of the North Sea. Failure to bring forward removal of the Energy Profits Levy, introduced by the Rishi Sunak in 2022, prompted industry fury while a significant movement on new licensing, allowing tie-back projects from existing fields, was largely overlooked.

I have said regularly since it was first intimated that Labour’s commitment to “no new licences” was an ill-judged piece of virtue signalling which ignored the key reality – that accelerating the decline of North Sea production, particularly of gas, makes absolutely no sense if it means importing more from the US, Qatar and Norway, as is the ever-clearer reality.

READ MORE: UK Budget Reaction: Reeves leaves business rates dilemma for Scottish Government

UK’s tax take same as Norway’s

Accordingly, I welcome any shift from the absolutism of that position. It should also be pointed out that the tax take on upstream activity in Norway has long been 78 per cent, which is exactly the same as here, including the windfall tax. So while there are other factors to take account of, the level of taxation in the North Sea may not of itself be the barrier to new investment that is claimed.

Nonetheless, there is a big question around the fiscal logic of North Sea policy. Tax revenues are on a rapid slide and, in the current year according to the Office of Budget Responsibility, will come in at £2.7 billion.

By 2030, they will fall to £300 million – a mere accounting error in Treasury terms. It is therefore in the government’s own interests to increase that figure, rather than become resigned to it.

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15.7 billion reasons for a rethink

The industry has put forward proposals which, it says, would bring in an additional £15.7 billion in tax revenues over the next decade. That is an offer worthy of serious examination even if it conflicts with the wider short-term need to raise taxes rather than cut them.

One reason is that, whatever the virtues of renewables, the “transition” phase is all about costs rather than revenue and the theory that North Sea taxes will pay for them is now looking pretty thin. The whole transition scenario has to be looked at afresh, based on objective realities and without the impediments of green grandstanding or apocalyptic predictions. Just try to get this as right as possible.

The Budget is not the appropriate context within which to do this because the fiscal implications are only one part of the debate. There are, of course, a lot of jobs at stake and, in the view of many who are not Treasury officials, the main argument for pumping life into the North Sea is the UK’s energy security in a world that has become much more uncertain, even since rash policy commitments were made.

READ MORE: North Sea jobs lost 'within days' as UK Budget ignores economically ruinous oil and gas policy

Rational conclusion

We already import two-thirds of our gas. I have never heard any minister making the case for this not being high enough – yet that is the logic of their position. And what about cutting emissions?

The North Sea Transition Authority has reported that “domestically produced gas is on average almost four times cleaner than importing gas in LNG form”, so what does that make of the environmental argument?

This is a debate that needs to be brought to a rational conclusion and must extend far beyond the Treasury and Budget. Claims about the windfall tax as a North Sea show-stopper should not be swallowed uncritically.

Equally, the grudging first step on tie-ins to existing fields has to be followed by a much clearer signal that the North Sea is open for business, even if that involves a bit of pride-swallowing.

The Budget should be seen as the start of that short, sharp, comprehensive debate on North Sea policy in the widest national interest, rather than its conclusion.

On another front, let’s hope that by next year, some dignity will have been restored to the Budget process. The movement towards weeks of leaks, kite-flying and spinning has now descended into farce, to which – with wonderful irony – the Office for Budget Responsibility added the final touch. Sometimes the old ways are the best.