Windfall tax the “biggest danger” to the North Sea’s transition plans, Kwarteng warns

The windfall tax threatens to push investment out of the UK North Sea, setting back energy transition hopes, Kwasi Kwarteng told E-FWD last night.

Speaking after the second E-FWD event, focused on the energy transition opportunities of the region, Kwarteng warned the “biggest danger” with the Energy Profits Levy (EPL) was that it would drive companies away.

“You get more Harbour Energies saying we’re not going to play this game anymore,” the Conservative backbencher said. “You’re going to have to start decommissioning and winding things down much more quickly than you thought.”

This would create a “world where you’ve sunsetted one industry before another has been able to get going”. He cited opportunities such as hydrogen and carbon capture and storage (CCS).

EPL change

Kwarteng said he had opposed the EPL while within government “because I could see that once it was in it was unlikely to be removed”.

He has held a number of ministerial posts, including Secretary of State at Department of Business, Energy and Industrial Strategy (BEIS) and Chancellor of the Exchequer, but has recently stated he will not run again as an MP.

In a recent Ipsos poll, only 20% of respondents said they would vote for the Conservative Party at the next election, which is expected in the autumn. The same poll gave the Labour Party 47% of votes.  

The EPL is charged on profits at 35%, imposing a headline tax burden of 75%. Labour has set out plans to increase the profit tax by 3%. This would bring the total to 78%, in addition to some other changes.

“Whoever comes in in the autumn will have to deal with this as a matter of some urgency,” he continued.

It would be a mistake for companies to wait for the election and then attempt to pursue the new government, Kwarteng warned.

Engage

Waiting for a Labour government would be a “really dumb thing to do”, Kwarteng said. Companies should certainly engage with politicians but should also be working with civil servants.  

“It’s the civil servants who are shaping their diaries and the civil servants who are giving them briefings to read. To say you’re just going to wait for Labour is a fundamental misunderstanding of how government works.”

Government must also take steps to speak to industry, he said. Prime Minister Rishi Sunak and Chancellor Jeremy Hunt “have been trying to think of ways to alleviate that pressure. I’m sure that if Rachel Reeves gets elected, which the polls suggest is likely, if that happens [the Labour Party] will have to engage with the industry.”

The challenge for the energy industry, and politicians, is that oil and gas is a convenient target. This is particularly true when there is a cost of living crisis.

Kwarteng noted the “interconnected” nature of fossil fuels and new technologies. Those companies that have invested in oil and gas, he said, are often those in a position to support the transition.

He called for a move to a “holistic view of the energy sector. We understand the transition, we understand climate change, but we have to work with everyone to make that transition.”