Labour’s North Sea oil and gas policy under attack from industry and activists

Published

5 months ago

June 27, 2024

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One of the policy areas on which the Labour Party has been very specific during this general election campaign is its approach towards North Sea oil and gas production.

The party has been clear that it will raise existing windfall taxes first slapped on North Sea oil and gas producers in 2022 by Rishi Sunak, when he was chancellor, taking the total level of tax from the current 75% to 78%.

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Ed Miliband, the shadow secretary of state for energy security and net zero, also proposes to take away tax reliefs Mr Sunak put in place alongside the windfall tax, to sugar the pill, which allowed producers to offset their investments in new production against their tax bills.

Mr Miliband, who has referred to these tax breaks as ‘loopholes’, argues this would bring the tax treatment of the British North Sea into line with that of the Norwegian North Sea. He is also proposing a ban on new oil and gas exploration licenses as part of what remains of his ‘green prosperity plan‘.

With Labour so far ahead in the polls, that is already having an effect on investment in the North Sea, with a trio of companies – Jersey Oil and Gas, Serica Energy and Neo Energy – announcing earlier this month that they are delaying, by a year, the planned start of production at the Buchan oilfield 120 miles to the north-east of Aberdeen.

Industry attacks

Serica, which on average has produced 43,781 barrels of oil or oil equivalent per day so far this year, sought today to remind politicians of the potential consequences of their actions.

David Latin, Serica’s chairman and interim chief executive, unleashed a furious attack on the proposals – telling shareholders: “I have been involved in this industry for more than 30 years and have worked all over the world.

“Other than when I was responsible for a company which had significant assets in a war zone, I have never encountered a situation which was so challenging when it comes to making investment decisions, and planning for the future more generally, as it is in the UK at present.”

Reminding his audience that the UK consumes almost twice as much oil and gas as it produces, Mr Latin said that deficit would persist even as the country sought to reduce its consumption of hydrocarbons, with the gap being filled by imports.

He added: “These imports worsen our national balance of payments, only deliver jobs and taxes to foreign countries and, typically, have higher production and transportation carbon emissions by the time they get to our shores.”

Addressing misconceptions

Criticising the Conservatives for persisting with windfall taxes despite oil and gas prices having returned to historically normal levels and Labour for proposing to raise those taxes, Mr Latin said there were a number of misconceptions around the tax regime – not least the notion that the windfall tax is being paid largely by oil majors like Shell and BP.

He went on: “As to the claim that the tax is being paid by the “oil and gas giants”, it is in fact independent companies like Serica who are most affected. The ‘majors’ account for only around a third of UK production and the vast majority of their profits are made overseas and are not touched by increasing tax rates on UK production.

“Indeed, for those companies such as Serica that continued to invest in their assets during periods of lower commodity prices prior to the invasion of Ukraine, the current fiscal regime represents a further punishment for risk capital committed to its portfolio during the very low commodity prices seen in the COVID period.

“Closing ‘loopholes’ in UK oil and gas tax seems to mean different things to different people.

“Whatever is meant, I wish to be crystal clear that reducing tax relief for capital expenditure below the rate at which tax is payable would make investment in the vast majority of UK North Sea projects unprofitable, meaning that these projects, and the jobs and tax revenues they would generate, simply will not happen.”

Union criticism of Labour

But criticism of Labour’s policy was also coming today from another direction.

Unite, the UK’s biggest union and traditionally Labour’s biggest financial supporter, also has concerns banning new oil and gas exploration licences that could force the UK to import more gas when it still has plenty of its own.

Today it published an open letter, urging a rethink on the ban, signed by nearly 200 local firms from Scottish towns dependent on the oil and gas industry – while some of those businesses joined Unite members in a demonstration outside Aberdeen’s Maritime Museum.

Sharon Graham, Unite’s general secretary, said: “Until Labour has a concrete plan for replacing North Sea jobs and ensuring energy security, the ban on new oil and gas exploration licenses should not go ahead.

“Labour must not allow oil and gas workers to become this generation’s coal miners. Scotland’s oil and gas communities are crying out for a secure future and that is what Labour must deliver.”

However, while businesses are warning that Labour’s policy will drive investment elsewhere and unions worry about the impact on jobs and local communities in north-east Scotland, there are others who think the party could go further.

Not going far enough

While Unite was staging its demonstration in Aberdeen, some 50 protestors from a group calling itself Stop Polluting Politics were staging one of their own 553 miles to the south at the Labour Party headquarters in Southwark, southeast London.

They allege that the party has “financial ties to polluting corporations” and have criticised a decision by Rachel Reeves, the shadow chancellor, to accept a £10,000 campaign donation from Lord Donoughue, the Labour peer, who has in the past chaired the Global Warming Policy Foundation – a climate change sceptic lobby group.

They allege that Ms Reeves’s decision to ‘water down’ Mr Miliband’s ‘green prosperity plan’ in February this year was influenced by the donation – something Lord Donoughue himself has vehemently denied.

It all highlights how energy policy threatens to become a major headache for Labour should it win the election a week today.

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UK economy grows by 0.1% between July and September – slower than expected

Published

7 hours ago

November 15, 2024

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UK economy grows by 0.1% between July and September - slower than expected

The UK economy grew by 0.1% between July and September, according to the Office for National Statistics (ONS).

However, despite the small positive GDP growth recorded in the third quarter, the economy shrank by 0.1% in September, dragging down overall growth for the quarter.

The growth was also slower than what had been expected by experts and a drop from the 0.5% growth between April and June, the ONS said.

Economists polled by Reuters and the Bank of England had forecast an expansion of 0.2%, slowing from the rapid growth seen over the first half of 2024 when the economy was rebounding from last year’s shallow recession.

And the metric that Labour has said it is most focused on – the GDP per capita, or the economic output divided by the number of people in the country – also fell by 0.1%.

Reacting to the figures, Chancellor of the Exchequer Rachel Reeves said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers,” she said in response to the figures.

“At my budget, I took the difficult choices to fix the foundations and stabilise our public finances.

“Now we are going to deliver growth through investment and reform to create more jobs and more money in people’s pockets, get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal,” Ms Reeves added.

The sluggish services sector – which makes up the bulk of the British economy – was a particular drag on growth over the past three months. It expanded by 0.1%, cancelling out the 0.8% growth in the construction sector

The UK’s GDP for the the most recent quarter is lower than the 0.7% growth in the US and 0.4% in the Eurozone.

The figures have pushed the UK towards the bottom of the G7 growth table for the third quarter of the year.

It was expected to meet the same 0.2% growth figures reported in Germany and Japan – but fell below that after a slow September.

The pound remained stable following the news, hovering around $1.267. The FTSE 100, meanwhile, opened the day down by 0.4%.

The Bank of England last week predicted that Ms Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.

Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.

The Bank’s quarterly report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.

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Chancellor’s Mansion House speech vows to rip up red tape – saying post-financial crash rules went ‘too far’

Published

17 hours ago

November 14, 2024

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Chancellor's Mansion House speech vows to rip up red tape - saying post-financial crash rules went 'too far'

Chancellor Rachel Reeves has criticised post-financial crash regulation, saying it has “gone too far” – setting a course for cutting red tape in her first speech to Britain’s most important gathering of financiers and business leaders.

Increased rules on lenders that followed the 2008 crisis have had “unintended consequences”, Ms Reeves will say in her Mansion House address to industry and the City of London’s lord mayor.

“The UK has been regulating for risk, but not regulating for growth,” she will say.

It cannot be taken for granted that the UK will remain a global financial centre, she is expected to add.

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It’s anticipated Ms Reeves will on Thursday announce “growth-focused remits” for financial regulators and next year publish the first strategy for financial services growth and competitiveness.

Bank governor to point out ‘consequences’ of Brexit

Also at the Mansion House dinner the governor of the Bank of England Andrew Bailey will say the UK economy is bigger than we think because we’re not measuring it properly.

A new measure to be used by the Office for National Statistics (ONS) – which will include the value of data – will probably be “worth a per cent or two on GDP”. GDP is a key way of tracking economic growth and counts the value of everything produced.

Brexit has reduced the level of goods coming into the UK, Mr Bailey will also say, and the government must be alert to and welcome opportunities to rebuild relations.

Mr Bailey will caveat he takes no position on “Brexit per se” but does have to point out its consequences.

In what appears to be a reference to the debate around UK immigration policy, Mr Bailey will also say the UK’s ageing population means there are fewer workers, which should be included in the discussion.

The greying labour force “makes the productivity and investment issue all the more important”.

“I will also say this: when we think about broad policy on labour supply, the economic arguments must feature in the debate,” he’s due to add.

The exact numbers of people at work are unknown in part due to fewer people answering the phone when the ONS call.

Mr Bailey described this as “a substantial problem”.

He will say: “I do struggle to explain when my fellow [central bank] governors ask me why the British are particularly bad at this. The Bank, alongside other users, including the Treasury, continue to engage with the ONS on efforts to tackle these problems and improve the quality of UK labour market data.”

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Reeves has welcome support from Bank’s governor as she goes for growth and seeks to woo City

Published

19 hours ago

November 14, 2024

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Reeves has welcome support from Bank's governor as she goes for growth and seeks to woo City

When Gordon Brown delivered his first Mansion House speech as chancellor he caused a stir by doing so in a lounge suit, rather than the white tie and tails demanded by convention.

Some 27 years later Rachel Reeves is the first chancellor who would have not drawn a second glance had they addressed the City establishment in a dress.

As the first woman in the 800-year history of her office, Ms Reeves’s tenure will be littered with reminders of her significance, but few will be as symbolic as a dinner that is a fixture of the financial calendar.

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Her host at Mansion House, asset manager Alastair King, is the 694th man out of 696 Lord Mayors of London. The other guest speaker, Bank of England governor Andrew Bailey, leads an institution that is yet to be entrusted to a woman.

Ms Reeves’s speech indicates she wants to lean away from convention in policy as well as in person.

By committing to tilting financial regulation in favour of growth rather than risk aversion, she is going against the grain of the post-financial crash environment.

“This sector is the crown jewel in our economy,” she will tell her audience – many of whom will have been central players in the 2007-08 collapse.

Sending a message that they will be less tightly bound in future is not natural territory for a Labour chancellor.

Her motivation may be more practical than political. A tax-and-spend budget that hit business harder than forewarned has put her economic program on notice and she badly needs the growth elements to deliver.

Her plans to consolidate local authority pension schemes so they might match the investing power of their Canadian and Australian counterparts is part of the same theme.

Infrastructure investment is central to Reeves’s plan and these steps, universally welcomed, could unlock the private sector funding required to make it happen.

Bank governor frank on Brexit and growth

If the jury is out in a business financial community absorbing £25bn in tax rises, she has welcome support from Mr Bailey.

He is expected to deliver some home truths about the economic inheritance in plainer language than central bankers sometimes manage.

Britain’s growth potential, he says, “is not a good story”. He describes the labour market as “running against us” in the face of an ageing population.

With investment levels “particularly weak by G7 standards”, he will thank the chancellor for the pension reforms intended to unlock capital investment.

He is frank about Brexit too, more so than the chancellor has dared.

While studiously offering no view on the central issue, Mr Bailey says leaving the EU had slowed the UK’s potential for growth, and that the government should “welcome opportunities to rebuild relations”.

There is a more coded warning too about the risks of protectionism, which is perhaps more likely with Donald Trump in the White House.

“Amid threats to economic security, let’s please remember the importance of openness,” the Bank governor will say.