The UK government has introduced proposals to ease the tax burden on offshore oil and gas companies while confirming a ban on new drilling licences. The move is part of a broader strategy to transition the North Sea towards clean energy.
The Treasury announced that the windfall tax on North Sea oil drillers, introduced in 2022 to address rising energy costs after Russia’s invasion of Ukraine, will be scrapped by 2030. Instead, a new taxation system will be developed, adjusting duties in line with global energy prices. The government claims this approach will give investors more certainty.
Alongside tax reforms, an eight-week consultation will explore ways to transition from oil and gas without triggering mass job losses. The Labour government is following through on its manifesto pledge to block new drilling licences, making the UK the first G7 nation to take this step. However, companies may still be allowed to expand existing fields through modifications to current licences.
Energy Secretary Ed Miliband stressed that the North Sea will remain central to the UK’s energy future. He emphasized that oil and gas production will continue to play a role while the UK moves towards renewable energy, hydrogen, and carbon capture technologies.
Trade unions, including the GMB and Unite, have criticized the ban on new drilling, warning of potential job losses and increased reliance on energy imports. GMB General Secretary Gary Smith called the decision “madness,” arguing that shutting down the North Sea prematurely would hurt jobs, economic growth, and national security. Unite also warned of economic consequences similar to those experienced by former coal-mining communities.
Despite concerns from unions, the oil industry cautiously welcomed tax reforms. North Sea drillers currently pay a 40% profit tax, along with a 38% energy profits levy introduced after oil and gas prices surged. Under the new system, tax rates will fluctuate based on market conditions, potentially lowering the burden during stable periods.
The trade group Offshore Energies UK (OEUK) supported the plan, saying it would protect jobs and provide a stable investment climate. OEUK Chief Executive David Whitehouse said the new tax system would bring certainty to investors.
Meanwhile, environmental groups welcomed the commitment to ending North Sea oil and gas reliance. Greenpeace praised the UK’s leadership, while climate action group Uplift called the move a significant step towards reducing fossil fuel dependency.
The UK’s decision signals a major shift in its energy strategy, balancing economic concerns with its goal of achieving net-zero emissions by 2050. The consultation period will determine how the country navigates this complex transition.
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