Windfall tax: Is a row brewing in the Tories?

Chancellor Jeremy Hunt has just announced his intention to extend the windfall tax on oil and gas company profits for another year.

Moments later, Scottish Tory leader Douglas Ross – who is also an MP – confirmed he would vote against such a move.

Then Andrew Bowie, a government minister no less, said the chancellor’s decision was “deeply disappointing”.

So could the UK Government be facing a rebellion from its Scottish representatives?

What is the windfall tax?

Formally known as the energy profits levy (EPL), the tax was introduced in May 2022 as energy companies were earning soaring profits as a result of increased market prices following Russia’s invasion of Ukraine.

Initially set at 25 per cent, Hunt increased it to 35 per cent last November. That took the overall tax burden faced by the sector to 75 per cent. In its first year, it raised £2.6bn for the Treasury.

Under current legislation, it is set to end in 2028.

What is the UK Government’s position?

Conservatives are not the biggest fans of increasing taxes and the chancellor today said that the government would legislate to “abolish the energy profits levy should market prices fall to their historic norm for a sustained period of time”.

But in the next breath, he confirmed the government would extend the tax for a further year. He said: “Because the increase in energy prices caused by the Ukraine war is expected to last longer, so too will the sector’s windfall profits. I will extend the sunset on the energy profits levy for an additional year to 2029, raising £1.5bn.”

Part of the reason for this is so he can fund tax cuts elsewhere – notably the cut to National Insurance contributions – ahead of the looming general election.

So what is Douglas Ross’s problem?

Reports suggest the Tory leader and Moray MP was put on resignation watch by Conservative whips last night following a heated discussion with the prime minister.

According to The Telegraph, Ross sought out both Rishi Sunak and Hunt to urge both to drop the plans. After interventions from chief whip Simon Hart and Scottish secretary Alister Jack, Ross said while he would not quit, he would be publicly criticising the decision.

As promised, a press release from the Scottish Conservatives dropped shortly after Hunt took his seat. In it, Ross said: “While I accept the chancellor had some tough decisions to make, I’m deeply disappointed by his decision to extend the windfall tax for a further year. 

“The SNP and Labour have abandoned 100,000 Scottish workers by calling for the taps in the North Sea to be turned off now.

“Although the UK Government rightly oppose this reckless policy – and have granted new licences for continued production in the North Sea – the budget announcement is a step in the wrong direction.

“As such, I will not vote for the separate legislation needed to pass the windfall tax extension and will continue to urge the chancellor to reconsider.”

Is a rebellion in the offing?

It’s too early to tell whether the extension will lead to a full-on Scottish revolt, but Andrew Bowie – who is a government minister and therefore expected to follow the party line – backed Douglas Ross.

The West Aberdeenshire and Kincardine MP tweeted: “The extension of the EPL is deeply disappointing. I will be working with [Ross] to resolve this.”

None of the five other Scottish Tory MPs have yet said anything.

What about the Tories at Holyrood?

Awkwardly, the party’s shadow cabinet secretary for energy Douglas Lumsden leding a debate on Wednesday afternoon on “backing Scotland’s oil and gas sector”.

His motion urged MSPs to condemn Labour plans to extend (and increase) the windfall tax, warning it would “lead to 42,000 job losses and £26bn of economic value being wiped out”.

That motion was laid two days ago – before the party knew of the UK Government’s plans.

In a thread on Twitter, Lumsden confirmed he would work with Ross and others to “correct this course of action”. He added: “This tax is one that discourages investment into the very industries that we need for our energy future in the UK and north-east Scotland.”

Still, the other party's had a bit of fun at the Tories expense. 

Energy secretary Mairi McAllan: “This demonstrated among many other things pertinent to this debate just how little influence the leader of the Scottish Tores has when it comes to his leadership in London.  I understand he made personal representations and he must be utterly embarrassed that he’s been ignored.”

And Labour’s economy spokesperson Daniel Johnson: “I think we can all agree on one thing in the chamber this afternoon – Douglas Lumsden desperately needs Jeremy Hunt’s phone number. One text message, that’s all it would have taken, ‘should I table this motion? Is it a good idea?’ And it would have spared the blushes and the rather awkward argument that we heard in the opening speech this afternoon.”

What are the other Scottish parties saying?

As mentioned, Labour has already announced its own plans to increase and extend the levy should the party be in government later this year.

Like the Tories, leader Keir Starmer would keep it going until 2029 but he would also raise it to 38 per cent – therefore moving the headline tax rate to 78 per cent.

In response to today’s announcement, Scottish Labour leader Anas Sarwar said: “The Chancellor’s decision to follow Labour’s lead and extend the windfall tax on the profits of oil and gas giants exposes Douglas Ross’ irrelevance in his own party and leaves the SNP to the right of the Tories on this issue.”

The SNP supports the windfall tax that is currently in place, but it vehemently opposed to Labour’s plan.

First Minister Humza Yousaf accused the party of trying to “raid” the sector to “pay for nuclear energy power plants in England”.

And in response to today’s statement, Aberdeen MSP Kevin Stewart tweeted: “By extending the oil and gas windfall tax by a year, the UK Government are putting thousands of jobs in Aberdeen at risk to fund National Insurance cuts that will largely benefit the rich. As always Scottish Tories have been ignored by their Westminster masters.”