Why Chancellor Rachel Reeves should be looking at cuts to oil and gas windfall tax
Reaching net zero will require a ‘whole society’ effort that includes oil companies, investment firms and the like
When Rachel Reeves arrived at RAF Lossiemouth, probably the last thing she wanted to hear was calls for a massive tax cut. The Chancellor had limited room for manoeuvre even before the climbdown on pensioners’ winter fuel payments and the U-turn over disability benefits cuts, and now faces having to raise taxes even higher just to balance the books.
However, any Labour politician making a trip to Scotland is almost guaranteed to face questions about the oil and gas windfall tax, introduced by the Conservatives – as energy firms benefited from soaring prices following Russia’s Ukraine invasion – then increased and extended by Labour.
Reeves insisted it was right to ask oil and gas firms to “pay a little bit more and put that money into public services”, adding the Conservatives and SNP, who both now oppose the windfall tax, needed to explain what they would do instead. “Would they increase taxes on ordinary people? That’s not my priority,” she said.
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Billion-pound golden eggs
However, that “little bit more” is quite a lot, with Reeves saying it was “bringing in billions”, underlining how important oil and gas is to the UK. Squeezing out every penny in tax may not be wise if it throttles the North Sea goose laying all these billion-pound golden eggs – even from the point of view of trying to tackle climate change.
The goal of net zero will not be achieved by ‘just stopping oil’, as this would ‘just stop economic growth’ and wreck the government’s finances. Instead, it needs to be a whole society effort that includes oil companies, investment firms and the like. Capitalists, not pie-in-the-sky eco-warriors, hold the key to our salvation.
So, while we sympathise with her plight, Reeves should be looking at reducing the windfall tax. However, if she does, she must win something in return. Oil and gas companies need to be investing much more in renewables, for the sake of their shareholders, but also to ensure our skilled North Sea workforce have jobs to go to when the oil runs out.
If Reeves can kickstart the faltering ‘just transition’ in exchange for concessions on the windfall tax, that could be a very good deal indeed.
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