Key takeaways

  • Britain is maintaining its policy of not issuing new North Sea exploration licences, confirming a position first set out in Labour’s 2024 manifesto.
  • The Energy Profits Levy (windfall tax) keeps the sector’s headline tax rate at roughly 75%, among the highest for any UK industry.
  • The North Sea is a mature basin: output has fallen sharply since its late-1990s peak and continues to decline as fields age.
  • Offshore Energies UK reports that the large majority of operators are cutting investment, while a trade union warns of job losses without a credible transition plan.
  • The debate pits climate commitments and a “just transition” against energy security, tax revenue and tens of thousands of skilled jobs concentrated in Scotland and the north-east.

Britain’s approach to the North Sea has become one of the sharpest fault lines in the country’s energy and economic policy, and the latest signals suggest the direction of travel is unchanged. According to reporting from the Financial Times, the incoming prime minister, Andy Burnham, intends to maintain the ban on new North Sea exploration licences — a decision the FT says has been criticised by the oil and gas industry and by a trade union. The move confirms, rather than reverses, a policy first set out in Labour’s 2024 general election manifesto, and it lands at a moment when the basin is maturing, investment is under pressure and the future of the sector’s workforce is a live political question.

For investors, workers and communities tied to the North Sea oil and gas economy, the decision removes one source of uncertainty while sharpening others. The headline policy is settled: no new licences will be granted to explore for oil and gas in previously unlicensed areas. But the questions that surround it — how quickly production declines, how the tax regime evolves, whether a “just transition” can genuinely replace lost jobs, and how the UK balances domestic supply against imports — remain unresolved. This article examines the policy, its fiscal backdrop, the reaction from industry and unions, and what it means for energy security, jobs and the wider economy.

The policy: no new exploration licences

At the heart of the debate is a deceptively narrow measure. The government’s position is that it will not issue licences to explore for oil and gas in parts of the UK Continental Shelf that have not previously been licensed. This does not, in itself, shut down the North Sea overnight. Production from fields that already hold licences continues, and companies can still develop discoveries within existing acreage.

The distinction matters. The Department for Energy Security and Net Zero (DESNZ) has framed the approach as ending new exploration for offshore oil and gas fields while allowing limited continued production from areas that are already licensed. Under proposals set out in its North Sea consultation, extraction can continue from existing developments and from adjacent reserves reached through “tiebacks” — infrastructure connections to nearby producing platforms — without opening entirely new frontiers to exploration. In other words, the tap is not being turned off, but no new taps are being installed.

Licensing itself is administered by the North Sea Transition Authority (NSTA), the independent regulator responsible for awarding and overseeing petroleum licences and for stewarding the basin. The NSTA operates the licensing and consents system, and any change in government policy on new exploration flows through the way the regulator conducts, or declines to conduct, future licensing rounds. The regulator also has a formal role in the sector’s decommissioning and net zero obligations, reflecting its remit to manage the basin’s decline as well as its output.

Labour’s 2024 manifesto set out the rationale plainly: it argued that new drilling would do little to cut household energy bills, would not deliver energy independence, and would be inconsistent with climate goals. Ministers who support the policy — including those closely associated with the net zero agenda — have consistently maintained that the UK’s long-term security lies in home-grown clean power rather than in extending the life of a declining fossil-fuel basin. Critics counter that the same barrels will simply be imported instead, a point examined below.

The windfall tax context: the Energy Profits Levy

No discussion of North Sea investment is complete without the Energy Profits Levy (EPL), commonly known as the windfall tax. Introduced in May 2022 in response to the surge in oil and gas prices that followed Russia’s invasion of Ukraine, the levy has since become a structural feature of the sector’s economics rather than a temporary measure.

The levy was introduced at 25%, increased to 35% from January 2023, and raised again to 38% from 1 November 2024, according to the House of Commons Library. Combined with the ring-fence corporation tax and the supplementary charge that already apply to oil and gas profits, the EPL takes the sector’s headline marginal tax rate to roughly 75% — among the highest faced by any industry in the UK. The levy’s planned end date has been extended more than once and now runs to 31 March 2030, subject to a price-based mechanism that could unwind it earlier if oil and gas prices fall back to more normal levels for a sustained period.

The revenue is real but has been falling as prices ease and production declines: the House of Commons Library notes the levy raised in the region of £2.9bn in 2024/25, lower than the previous year. For the Treasury and the Office for Budget Responsibility, the EPL is a meaningful but diminishing source of income; for operators, it is the single biggest determinant of whether marginal projects clear their investment hurdles.

Offshore Energies UK (OEUK), the sector’s main trade body, argues that the fiscal regime is the decisive factor behind falling investment. In its analysis, the 75% headline rate is roughly three times that faced by conventional UK businesses, and the combination of a high rate and repeated changes to allowances has damaged investor confidence. OEUK has reported that the large majority of offshore operators — more than nine in ten in its survey work — have been cutting investment, and that hundreds of millions of barrels of oil equivalent have been removed from company development plans. The exploration ban and the windfall tax are legally separate, but for capital-allocation decisions they compound one another: one closes off future prospects, the other squeezes the returns on those that remain.

The industry and union reaction

The FT reports that the decision to maintain the ban has been criticised by both the oil and gas industry and a trade union — an unusual alignment that captures the political complexity of the issue.

From the industry side, the objection is partly about investment and partly about sequencing. Trade bodies argue that a mature basin needs a stable, competitive fiscal and licensing environment to attract the capital required not only for continued oil and gas production but also for the offshore wind, hydrogen and carbon capture projects that are supposed to form the sector’s future. OEUK has pointed to tens of billions of pounds of potential investment across offshore energy — including substantial planned spending on offshore wind — while warning that policy uncertainty pushes that capital elsewhere. The industry’s central claim is that abrupt decline harms the very supply chain and skills base needed to build the clean-energy economy.

The union critique comes from a different direction but reaches a related conclusion. Unite, one of the largest unions representing offshore workers, has run a long-standing “No Ban Without a Plan” campaign, arguing that ending oil and gas activity without a concrete, funded strategy to create replacement jobs risks abandoning workers and communities. Unite’s general secretary, Sharon Graham, has warned that the drive towards net zero “amounts to recklessly letting go of one rope before you have hold of another.” The union has criticised recent government proposals as “tinkering around the edges that will not deliver,” and has pressed for tangible projects — such as converting refinery sites to produce sustainable aviation fuel — rather than what it sees as marginal announcements. The GMB union has voiced comparable concerns about the pace of change and the need for domestic industrial capacity.

On the other side of the argument sit environmental groups and green politicians, who welcome the exploration ban. Their case, echoing the manifesto, is that new drilling would not lower bills or deliver energy security because oil and gas are sold on global markets, and that approving new fields is incompatible with the UK’s climate obligations. This is the tension the government has chosen to navigate by holding the line on exploration while allowing existing production to continue.

Energy security versus climate goals

The maintained ban brings the trade-off between energy security and climate policy into focus. Supporters of continued domestic production argue that if the UK still consumes oil and gas — which it will for years, even under ambitious net zero scenarios — it is better to produce some of that at home than to import it. Domestic production supports jobs and tax revenue, and industry advocates contend that gas produced in the North Sea can carry a lower production-emissions footprint than liquefied natural gas shipped from distant markets. OEUK has highlighted that the UK’s reliance on imported energy has risen even as domestic output has fallen, a trend it argues will accelerate without investment.

Opponents make the case that new exploration would not meaningfully change this. Because prices are set globally, additional North Sea barrels would not insulate British consumers from international shocks, and any new field would take years to come on stream — well beyond the immediate cost-of-living concerns that dominate energy politics. From this perspective, the faster route to genuine security is to reduce demand for gas through efficiency, electrification and a rapid build-out of renewables and grid infrastructure.

The government’s chosen path attempts to hold both ideas at once: keep producing from existing fields to avoid a supply cliff-edge, but stop opening new frontiers so that the long-term trajectory is consistent with decarbonisation. Whether that middle position is stable — politically and economically — is precisely what the current debate is testing.

Jobs and the transition

Perhaps the most emotionally charged dimension is jobs. The North Sea supply chain is concentrated in Scotland and the north-east of England, with Aberdeen long regarded as the UK’s oil capital. Employment in the sector has already fallen substantially over the past decade as production matured and prices fluctuated; DESNZ has cited a decline in North Sea output of roughly three-quarters between 1999 and 2024, and industry and academic analyses have documented tens of thousands of jobs lost since the mid-2010s. Research from Robert Gordon University in Aberdeen has warned that, without intervention, the offshore workforce could shrink at a pace comparable to significant redundancy events, underscoring the stakes for local economies.

The government’s answer is the concept of a “just transition.” Its North Sea plan sets out measures intended to redeploy oil and gas workers into clean energy, defence and advanced manufacturing, including a new North Sea jobs service offering careers advice and retraining, backed by funding from the UK and Scottish governments. Ministers point to analysis suggesting a large majority of current oil and gas workers already hold transferable skills relevant to priority sectors, and to targets for tens of thousands of clean-energy roles in Scotland by 2030.

The unions’ scepticism turns on timing and credibility. Their concern is not that a transition is impossible, but that the replacement jobs must be real, well-paid and available before the existing ones disappear — the “one rope before another” argument. The closure of refining capacity, with associated job losses, has hardened that view. For workers, the difference between a managed transition and an abrupt decline is not abstract; it is the difference between a career pathway and redundancy.

Impact on investors, Scotland and the economy

For investors, the maintained ban clarifies the strategic outlook even as it constrains it. Companies focused purely on UK exploration face a structurally shrinking opportunity set, and capital is likely to continue flowing towards jurisdictions with more favourable fiscal and licensing regimes, or towards the energy-transition projects the government is trying to encourage. The combination of a high headline tax rate under the EPL and no route to new acreage means that value in the UK basin increasingly lies in efficient production from existing assets, decommissioning services, and the pivot to offshore wind, hydrogen and carbon capture and storage.

For Scotland, the stakes are particularly acute. The north-east economy has been built around oil and gas expertise, and the pace at which clean-energy investment materialises will determine whether Aberdeen and surrounding communities retain their status as an energy hub or face prolonged economic adjustment. The Scottish and UK governments both have political incentives to demonstrate that the transition delivers locally, but the two administrations do not always agree on pace or policy detail.

For the wider economy, the North Sea’s fiscal contribution is declining in step with production, reducing but not eliminating the Treasury’s exposure to the sector. The larger economic question is whether the UK can convert its North Sea engineering base into a durable clean-energy industry that supports growth and exports, rather than simply managing decline.

Opportunities

  • A pivot to offshore wind, hydrogen and carbon capture that reuses North Sea infrastructure and skills.
  • A large decommissioning market as ageing fields reach the end of their lives, creating specialist work.
  • Potential for the UK to build an exportable clean-energy supply chain if investment and policy align.

Challenges

  • A high headline tax burden under the EPL that dampens investment in existing production.
  • A mature basin in structural decline, limiting the scale of any domestic oil and gas activity.
  • The risk that clean-energy jobs do not arrive quickly enough or in the right locations to absorb displaced workers.

Material risks

  • Policy and fiscal uncertainty, including future changes to the EPL and its end date, could further deter capital.
  • Global price volatility affects both production economics and the tax take.
  • A disorderly transition could damage the supply chain the clean-energy build-out depends on, and carry significant social costs in affected regions.

What happens next

In the near term, the policy picture is one of continuity: no new exploration licences, continued production from existing fields, and the EPL remaining in place under its current timetable to 2030 subject to the price mechanism. Attention now shifts to implementation and detail. Key things to watch include how the North Sea Transition Authority handles future licensing activity within existing rules; whether the government adjusts EPL allowances or the price threshold that could end the levy early; the rollout and take-up of retraining and jobs schemes; and the pace at which offshore wind, hydrogen and carbon capture projects reach final investment decisions.

The politics will also remain live. With an incoming prime minister said by the FT to be maintaining the ban, the pressure from industry and unions for a more detailed transition plan is unlikely to ease, and the balance struck within government between energy security and climate ambition will continue to be tested. Budget events and any fiscal statements will be closely watched for signals on the windfall tax.

Conclusion

Britain’s decision to maintain its ban on new North Sea exploration licences confirms a strategic direction rather than setting a new one. The policy is narrow in mechanism but wide in consequence: it locks in the long-term decline of new UK oil and gas exploration while leaving existing production, the windfall tax and the transition debate to shape the sector’s future. Industry warns of lost investment and energy security; a trade union warns of lost jobs without a credible plan; environmental voices welcome a policy they see as consistent with climate goals. All three can be right at once, which is why the North Sea remains such a difficult balance to strike. For investors, workers and communities, the central uncertainty is no longer whether new exploration will be permitted, but whether the promised clean-energy future arrives fast enough to replace what is being wound down.