Rachel Reeves reaffirmed her commitment to ending the windfall tax on North Sea oil and gas as she met energy chiefs, while warning that the Middle East war has created a “more uncertain context for policy decisions”.
The Chancellor discussed gas and oil prices soared by Iran's threats to block a key shipping route in talks with companies including BP, Adura and Offshore Energies UK.
Ahead of the Downing Street discussions, Ms Reeves came under pressure from Scottish First Minister John Swinney to scrap the charge, which is officially known as the energy profits tax.
Introduced by the Conservative government in the wake of the war in Ukraine – which caused a sharp rise in energy prices – the charge was introduced to recoup some of these windfall profits for the Treasury.
After the talks, a Government source said: “The Chancellor was clear with the industry that she wants the energy profits tax to end.
“She made that promise and she's keeping it. In fact, it was a commitment she wanted to make this week.
“But the crisis in the Middle East has had real-time consequences on oil and gas prices and it is right that we respond to this.”
The Treasury said Ms Reeves told bosses that the expected activation of the energy security investment facility in 2027 – which will end the windfall tax – “will be welcomed and emphasized her interest in providing certainty to the sector on that front, but highlighted that geopolitical events create a more uncertain context for policy decisions”.
The department described the talks as “positive”, with ministers working with the sector to provide long-term financial certainty and navigate the uncertain period of the coming months.
Previously, Swinney again insisted that it was “absolutely essential” that the UK Government removes the windfall tax, which he said was impacting investment in the North Sea and costing jobs.
He said the current “uncertainty over energy supplies” as a result of the conflict in the Middle East was now a “material consideration” for removing the charge.
During a visit to Inverness, Swinney said he hoped the Chancellor would use Tuesday's spring statement to remove it.
When that did not happen, Holyrood Finance Secretary Shona Robison said Reeves should use Wednesday's meeting with North Sea industry leaders to “announce the end of this Scottish energy tax”.
Meanwhile, Swinney insisted: “Now that we have the conflict in the Middle East, I think it is absolutely essential that the energy profits tax be eliminated.
“I was hoping it would be removed yesterday in the spring statement. It hasn't, but the Chancellor is meeting the industry today.
“I hope that will result in the elimination of the energy profits tax.”
Mr Swinney, speaking to the Press Association, added: “I have been telling the UK Government for some time that the energy profits tax should be scrapped because it is hampering investment in the North Sea oil and gas sector, which is resulting in job losses at a much faster rate than we anticipated.”
With conflict in the Middle East creating “uncertainty over energy supplies in the period ahead”, the Prime Minister said it was now an “important consideration as to whether the energy profits tax should be maintained”.
However, he insisted: “I don't think there is a reason for it and it should be removed.”
But Simon Francis, coordinator of the Coalition to End Energy Poverty, said: “The conflict in the Middle East and rising global gas prices show exactly why the windfall tax is still necessary, not why it should be scrapped. When geopolitical tensions drive up prices, energy companies and their shareholders benefit, while households face another round of higher bills from July 1.
“Energy companies have made tens of billions in profits in recent years even with the energy profits tax in place, so the idea that suddenly eliminating it will make energy cheaper or safer simply doesn't hold water.
“The North Sea is shrinking because of the geology of an aging basin, not because companies are paying their fair share of taxes.
“Instead of giving industry a tax break, governments should use this revenue to cut bills, tackle energy debt, support workers through the transition, and invest in warm homes and clean energy so that households are protected from exactly this type of global price shock.”
Meanwhile, Energy Secretary Ed Miliband rejected calls for the Government to reverse its ban on new drilling licenses in the North Sea.
He wrote on
“The conflict in the Middle East is another reminder that the only route to energy security and sovereignty for the UK is to stop relying on fossil fuel markets, whose prices we do not control, and move to clean, local energy that we do control.”
He criticized Conservative leader Kemi Badenoch's argument that new North Sea exploration licenses could reduce bills, pointing out that they “won't take a penny off the bills” because “oil and gas are sold on international markets.”
