Treasury pledges low-carbon investment relief to appease oil and gas industry

The Treasury has sought to defuse a bitter row with the North Sea oil and gas industry by promising to keep investment reliefs on low-carbon projects, aiming to protect jobs and soften the expansion of the energy windfall tax.

The chancellor, Rachel Reeves, said last month that she would expand the levy on energy industry profits as part of her plan to plug a £22bn “hole” in the public finances that Labour said had been left by the previous Conservative government.

However, energy bosses and unions representing North Sea workers warned that the changes could hit jobs and investment in the UK, especially in Scotland , where much of the industry is located and where Labour won back dozens of seats in Keir Starmer’s general election landslide.

In talks held in Aberdeen, the UK’s oil capital, on Monday to placate industry concerns, the Treasury minister, James Murray, said the government was committed to protecting jobs and investment in Scotland.

Speaking to the Guardian, he said the Treasury would retain a generous 80% decarbonisation investment allowance for the industry, despite wider measures to raise billions of pounds from energy firms.

“The chancellor set out the decision to remove unjustifiably generous allowances. But the decarbonisation allowance will remain,” he said.

“We are absolutely committed to managing the energy transition in a way that protects jobs and investment. We want to make sure the energy transition, which is vitally important to make UK energy secure, and to bring down the cost of energy bills, is done in a way that protects jobs and investment.”

The Treasury last month said the energy profits levy, first introduced by the Conservatives in 2022, would run for a year longer than planned, to 31 March 2030. It will be increased from a rate of 35% on energy industry profits to 38%, on top of a 40% headline tax rate. An investment allowance of 29% will also be axed.

After meeting Murray and bosses from firms including BP and Shell, David Whitehouse, the chief executive of Offshore Energies UK, the industry lobby group, said thousands of jobs and billions of pounds in economic value were at risk.

“The minister again heard in no uncertain terms direct from senior business leaders about the impact these proposals are already having for businesses of all sizes and their skilled people right across the whole of the UK,” he said.

Peter Welsh, of the GMB trade union, said: “The minister says he’s up to listen. We hope the government will, because change should be done with workers and their industries and not to them.”

Before the general election, Labour said it planned to raise about £6bn by expanding the energy windfall tax, using the revenue to help fund the creation of Great British Energy , a state-owned clean power company headquartered in Scotland.

Murray declined to say whether the latest changes would raise more revenue than planned, saying further details would be in the 30 October budget. However, he indicated that tax rises could form a key plank of Reeves’ plans.

“Our inheritance [from the Conservatives] is even worse than thought. That means there will be some difficult decisions around spending, welfare and tax,” he said.