Labour should reverse ban on new oil and gas licences, Tony Blair's think tank says

Scathing report by former Labour prime minister’s organisation says party is ‘leading the UK in the wrong direction’

Sir Keir Starmer's Government should axe the windfall tax on oil and gas firms and reverse its ban on new licences for North Sea drilling, Sir Tony Blair's think tank has said.

In a scathing new report, it argues that Labour's clean power plan is "leading the UK in the wrong direction" and that the Energy Profits Levy is deterring investment in the basin.

Tone Langengen, a policy adviser at the Tony Blair Institute (TBI) and author of the paper, said the government should also rethink the ban on new exploration in order to "protect supply chains".

The windfall tax, currently set at 38 per cent, was introduced under the previous government in May 2022 after profits rocketed due to a spike in energy prices following Russia's invasion of Ukraine .

The government has announced a consultation on plans to replace the levy, due to end in 2030, with a new regime aimed at providing more certainty for the sector while protecting consumers against future shocks.

Industry figures have been lobbying hard for changes to the tax, which they say is crippling investment and leading to job losses.

Labour has also banned new licences for drilling in the North Sea , though ministers have said that oil and gas will remain part of the energy mix for years to come and extraction near existing fields will still be allowed.

In its report, the TBI said: "The repeated expansion, extension and redesign of the Energy Profits Levy has materially increased policy risk, raised hurdle rates and deterred long-term investment in mature assets that already face geological decline.

"A stable framework should bring the Energy Profits Levy to an orderly close and replace it with a predictable long-term fiscal regime, limiting ad-hoc changes to headline rates and providing certainty on capital allowances so that investment decisions can be based on economic rather than political timelines."

The paper added: "Alongside this change, the Government should also reverse the ban on new exploration licences.

"A managed-decline strategy requires continued exploration to sustain economically viable production, protect supply chains and slow - rather than accelerate - the loss of domestic capacity."

It also criticised the Clean Power 2030 plan as having become an exercise in "measuring the wrong achievements" by counting "capacity, contracts and milestones" but neglecting affordability and "political durability".

‘Climate theatre’

"In a country responsible for less than 1 per cent of global emissions, that is not climate leadership - it is climate theatre," the report says.

" Clean Power 2030 is leading the UK in the wrong direction. Replacing it with a clear focus on cheaper, abundant power is the only way to sustain growth, enable electrification and maintain public consent for climate action."

David Whitehouse, CEO, Offshore Energies UK welcomed the institute’s intervention.

He said: “There’s a growing chorus of voices across the political spectrum calling for a pragmatic conversation about the UK’s energy mix and its interlinked industries.

“In an increasingly volatile world, it’s right to prioritise homegrown production of energy over imports. This means prioritising North Sea oil and gas with reform of the Energy Profits Levy now rather than in 2030, when it will be too late for many firms and their people - not just in energy but across UK sectors including chemicals, fuels and pharmaceuticals.

“To secure their competitive future and bring back jobs and investment we must lessen the UK's reliance on imports and back a homegrown energy mix from the oil and gas we need for decades to come alongside the build out of world class renewables.”

Shadow Scottish secretary Andrew Bowie MP said the report was “damning verdict on the forced decline” that has been “inflicted” on the North Sea sector.

He said: “Both Labour and the SNP spent years demonising the industry and its workforce, minimising its importance to the United Kingdom's economy and the well-being of its citizens.

“The outcome has been major job losses offshore and at vital strategic processors like Grangemouth. There have been huge knocks to consumer confidence, housebuilding and services in my constituency and the wider North East.

“All the while, energy prices are spiralling for people at home, and businesses are struggling to keep the lights on.

“Ideology has almost destroyed our massive energy potential — but there is a shining opportunity to reverse the course. Investment in new oil and gas, developing the resources we have for the first time in years, rather than shipping them in by the tankerload at astronomical cost.”

The SNP’s Westminster Leader Stephen Flynn has also called criticised the level of taxation on the oil and gas industry.

He said: “The Labour Party’s tax on Scotland’s energy is costing up to 1,000 jobs each month, risking our energy security, and damaging the economic opportunity of building a world class renewable energy industry alongside our world class oil and gas sector.

“Successive Westminster governments have been happy to treat Scotland’s energy industry as a cash cow for years but are now standing by and letting energy jobs go whilst energy bills continue to go up for Scottish households and businesses.”

A Department for Energy , Security and Net Zero spokesperson said: "Our clean power mission is the only way to bring down bills for good.

"The alternatives leave Britain dependent on petrostates and dictators whose control of fossil fuel markets helped drive the cost-of-living crisis, and are not in the interest of the British people.

"The route to energy sovereignty, lower bills and thousands of good jobs in our communities is becoming a clean energy superpower."