Across the political spectrum – and across the world – Gordon Brown is one of our most esteemed thinkers.

When he talks, people listen. When he talks about the economy, people lean in even closer.

As a former Chancellor of the Exchequer, he has a deep understanding of the heft Aberdeen’s oil and gas industry brings to the UK exchequer.

He also understands just how important our skills and world-class supply chain are – both today and as we accelerate that crucial energy transition.

He will therefore have been alarmed by the reaction of industry to Labour’s plans for a “proper” windfall tax and suggestions that anywhere between 20,000 and 100,000 direct and indirect jobs could go, if North Sea investment is to cease.

Former prime minister Gordon Brown backed a vision for ‘North Sea 2’. Jane Barlow/PA Wire.

In response, he has sought to restore some calm. The North Sea 2 report released by his think tank last week brought an informed serenity to what has been a fierce debate – and offered a scenario where there might even be more jobs in Aberdeen thanks to a new supergrid.

As a Labour man, you would expect him to go easy on the party’s North Sea policy agenda, which has caused uproar in the North-east.

He praised GB Energy and said that by leading on the North Sea grid and making Aberdeen its centre, Britain can be “at the forefront of global progress in both offshore wind technology and carbon capture and storage.”

But reading between the lines, there is a gentle warning for his old Labour colleagues, who would do well to listen to their former mentor.

The oil and gas sector is now paying over £1bn per month in tax, including £587m in corporation tax alone

He states that “the full potential can only be achieved if the skills which already exist in offshore development are retained”.

And the report goes on to say that the costs of developing North Sea 2 will be “considerable” and will have to rely on private capital. He concludes that “the private sector will only invest if they have confidence in the stability of government support”.

Both these points highlight the bind Labour now finds itself in.

On the one hand they have their former leader telling them they must retain and protect the critical mass built up over 50 years in oil and gas. On the other, they have a policy position which industry is telling them does the exact opposite.

And that is why they must change.

The argument for a windfall tax is now extremely weak. Both Ed Miliband and Rachel Reeves have said North Sea operators should only pay windfall rates of tax while prices are historically high. If that is the case, then the Energy Profits Levy should have already fallen away, because the windfall profits here in the UK have been and gone.

The semi-submersible drilling rig Transocean Sedco 704 seen at sunset. Shutterstock / Navin Mistry

In January 2022, the oil price was $86-a-barrel and that month the UK’s oil and gas producers paid £427million in tax, according to public receipts data from HM Revenue and Customs. Fast forward to today, the oil price is actually lower, sitting around $80/bbl, but the sector is now paying over £1 billion per month in tax. This includes £587m in corporation tax alone, even without the windfall tax on top.

If the windfall tax is a genuine levy on excess profits, then the price floor must be set at a level which does that. And if they want investment in renewables, then they must retain the investment allowance alongside it.

Anas Sarwar has said that all the party’s energy policies will be driven by the following principles: creating more jobs, reducing consumer energy bills, enhancing the UK’s energy security and demonstrating climate leadership.

On all four fronts, I believe Labour’s plan falls short. Others disagree, but there are enough concerns from industry leaders, investors, unions and academics to make me concerned.

On jobs, Offshore Energies UK has warned that up to 42,000 jobs in the energy sector could be placed at risk, while analysts at investment bank Stifel have since suggested that anywhere between 20,000 and 100,000 direct and indirect jobs could go if North Sea investment is to cease. Unions have also raised concerns.

On cutting bills, Labour needs to explain how importing more oil and gas from overseas – a certain outcome of these policies as they stand – will lower energy bills.

On delivering greater energy security, it fails to recognise that we need more domestic oil and gas production to offset decline. Wood Mackenzie estimates that if investment were to collapse, the lack of new fields would see UKCS production drop by 52% inside a decade. The UK is already a net importer of oil and gas – should these domestic projects not go ahead, the UK’s dependence on higher-emissions intensity imports will increase.

And the party’s attempts to show climate leadership could also be undermined, because there is a real risk that a hostile oil and gas investment environment could hinder the transition. All CCUS projects and some key offshore wind projects are reliant on cashflow and profits from the upstream sector to support their development. Without the revenue from upstream, these projects are at risk of being delayed or shelved altogether, according to Wood Mackenzie.

The key point is this – and it goes back to Gordon Brown’s intervention – the transition can only be delivered if industry and government work together.

We need to marry the scaling back of our oil and gas industry with the ramping up of renewables, otherwise there will be huge economic and social damage.

Taxing the oil and gas sector into oblivion will not achieve this balance.

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