Labour drops plan to backdate UK windfall tax on oil and gas

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Sir Keir Starmer, the Labour leader, has dropped plans to backdate the windfall tax on oil and gas producers to the start of 2022 if the party wins the next general election, in a further recasting of the party’s green agenda.

But that limited concession to the energy sector did little to assuage anger in the industry over Starmer’s plans to instead extend the lifetime of the levy by two years until 2029.

Offshore Energies UK (OEUK), the trade body, claimed that 42,000 jobs and £26bn of economic value would be “wiped out” by the extension of the windfall tax and an increase in the levy from 75 per cent to 78 per cent.

David Whitehouse, chief executive of OEUK, said: “Labour either can’t do the maths or haven’t considered the alarming jobs impact that will be felt up and down the country.”

He said the announcement was made “without engagement with the industry”.

Starmer has restructured the windfall tax in an attempt to plug the gaping holes in his £28bn-a-year flagship green spending plan, which he slashed this week to just £4.7bn.

Under the proposals, set out on Thursday, the new rate would raise £10.8bn over the next five years, starting in 2024-25. The party would retain a “floor” introduced by the government where the levy would cease to apply if oil and gas prices fell below a certain level.

The extra money Labour believes it can raise from the tax has been allocated to pay for half of its pared-back green prosperity plan, with the rest funded by extra government borrowing.

But Starmer pinned the blame for his U-turn on constrained public finances resulting from the Conservatives’ stewardship and insisted Labour would still deliver on its promise to build a green economy if it took power.

The windfall tax that Labour plans to increase — called the “energy profits levy” — was first imposed by the Conservative government in May 2022.

Starmer set out plans in August 2022 to raise £8bn from a higher windfall tax and said he would backdate the levy to the start of the energy crisis, before Russia’s full-scale invasion of Ukraine.

His original plan was to backdate the tax to cover oil and gas profits from January 2022, but a Labour spokesperson told the Financial Times on Friday: “This is no longer policy.”

One Tory official said it was another example of Labour “flip-flopping”.

But a spokesperson for shadow chancellor Rachel Reeves insisted there was no need to backdate the policy because Labour’s revised plan for an oil and gas windfall levy would raise enough revenue in future. 

Labour has adopted a tougher approach to the oil and gas industry than the government. Starmer has pledged not to issue any new oil and gas extraction licences despite criticism from the GMB union, one of Labour’s largest donors.

Its general secretary, Gary Smith, told the FT in May there was a “national security imperative” to keep the industry alive given Britain’s reliance on oil and gas.

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