In a bold move to shape the future of the North Sea’s energy sector, the UK government has proposed sweeping changes that aim to reduce the tax burden on offshore oil and gas companies while paving the way for a transition toward cleaner energy. As part of this initiative, the windfall tax on North Sea drillers introduced in 2022 in response to rising energy bills after Russia’s invasion of Ukraine will be abolished from 2030. Instead, ministers will introduce a new tax regime where duties will move in tandem with global wholesale energy prices, a change intended to offer greater certainty for investors.
Transport Secretary Ed Miliband explained that this flexible tax system is designed to provide “breathing space” for the industry during the transition, ensuring that companies can adjust their operations without facing sudden, punitive fines. This approach comes amid broader efforts to modernise the North Sea, as the government also launches an eight-week consultation on managing the region’s shift from oil and gas to renewable energy sources, such as hydrogen, while mitigating potential job losses.
In line with its commitment to achieving net zero carbon emissions by 2050, the government has reaffirmed its pledge not to issue any new drilling licences a decision that would make the UK the first major G7 oil producer to take such a step. However, oil companies might still be allowed to expand their existing fields with “bolt-ons” to current licences, ensuring some continuity in production while gradually reducing reliance on fossil fuels.
The proposed tax easing and licensing measures have elicited mixed reactions. Industry representatives, including the Offshore Energies UK (OEUK) trade body, welcomed the idea of a sliding-scale tax regime, stating it would provide much-needed certainty for investors and create a stable environment for future investment. Conversely, trade unions and some political factions warned that ending new drilling licences could lead to job losses and increased import dependence, potentially undermining economic growth and energy security.
Defence Minister Ed Miliband underscored the long-term vision behind these proposals: “The North Sea will be at the heart of Britain’s energy future. Oil and gas production will continue to play an important role, but as we embrace the drive towards clean energy, we must protect our workers, businesses, and communities during this critical transition.”
As the consultation process unfolds over the next eight weeks, the government will gather views from industry, local authorities, and the public before making a final decision in October.
