When Labour was restored to government in July 2024 after nearly a decade and a half in the political wilderness, Prime Minister Keir Starmer promised that economic growth would be his government’s number one priority. Chancellor Rachel Reeves conducted seminars with prominent business figures, insisting that Labour understood that businesses must make profits to survive and invest.
Starmer said “wealth creation” was Labour’s “defining purpose”, and private sector investment would be the “engine of growth and productivity”. Many businesses believed him. The Confederation of British Industry welcomed this social democratic party’s pragmatic approach. They were to be disappointed.
The accommodation with capitalism was only skin deep. Most Labour members and many Labour MPs still regard profit as a dirty word. They believe capitalism is morally wrong and that economic growth should ideally come through public sector investment, if at all. This aversion to business is confirmed by Reeves’s latest initiative in the deindustrialization of the North Sea.
After the start of the Iran war in early March, oil and gas companies beat a path to her door, hoping that this global disruption to supply might encourage the Labour government to renew exploration licenses in the North Sea and scrap the punitive 78 percent tax on oil and gas profits, which had made investment commercially unviable. Scrapping the tax regime the energy companies said could unleash over £17 billion in investment. They thought they had got their message across. They hadn’t. Rachel Reeves has just announced that the 78 percent tax will remain.
Her justification for this is that the oil and gas companies are making windfall profits from the global increase in the oil and gas price following the closure of the Strait of Hormuz. Therefore, she believes, there is no justification for relaxing the profits tax on activity in the North Sea. It is true that some oil companies are making big profits right now, but they are assuredly not making big profits in the North Sea, as companies like Harbour Energy have been making clear.
It has been shedding hundreds of jobs recently as a direct result of the 78 percent profits tax. Aberdeen and Grampian Chambers of Commerce say around a thousand jobs a month are being lost in the North Sea. Even the SNP government, which used to be ideologically opposed to fossil fuels, is now saying that the tax should be scrapped, if only to save jobs.
But Labour is currently being threatened by the rise of the Green Party under its new anticapitalist leader, Zack Polanski. The Greens won the recent Gorton and Denton by-election in Manchester, a seat that has been Labour-controlled for decades. Clearly, Reeves has been advised that any apparent let-up in the drive to achieve net zero could boost the Green Party in the forthcoming regional elections on May 7.
But this is not just electoral calculation. Most Labour members are as hostile to Big Oil as the Greens and believe that they have been robbing working people for decades by extracting super-profits and deploying legions of lobbyists to protect their interests. Clive Lewis is one of 50 Labour MPs who have signed up to the campaign group Uplift’s petition to oppose development of the Rosebank oil field off Shetland. The Norwich South MP says, “We must stand our ground against Trump, Reform and their fossil fuel paymasters.” This romantic anticapitalism dies hard.
The case for resuming exploration and production in the North Sea is, of course, unanswerable. Oil and gas are strategic resources, as the Iran war has confirmed. The UK depends on fossil fuels for nearly 80% of its energy. To import LNG from abroad, as has increasingly been the case, is not only costly to the consumer but is also more damaging to the environment.
Labour’s most successful former leader, Tony Blair, has been trying to get his successor to change tack. One of Britain’s biggest unions, the GMB Union, has too. And even net zero-supporting Lord Browne, the former head of BP (which he renamed “Beyond Petroleum”), has called on Rachel Reeves to abandon Labour’s irrational and unsustainable prejudice against oil and gas. But to no avail.
There had been reports last week that the hardline, net-zero evangelist Ed Miliband, Labour’s secretary of state for energy, was minded to allow production to proceed, at least in the Jackdaw gas field off Aberdeen. But this is being strenuously denied by his spokespeople. His aversion to exploration and support for punitive taxation will remain so long as he remains in office. Miliband is far and away the most popular minister in the government among Labour members and could pose a threat to Starmer’s leadership.
So this is really about ideology. The justification for allowing this precious resource to remain undeveloped, even at a time of a global energy crisis, arises directly from Labour’s profound suspicion of capitalism. Their hatred of Big Oil is quixotic, since most of the oil majors, like Exxon, have left the North Sea because it is no longer commercially viable. What activity takes place in existing fields is down to a handful of nimble independent operators like Harbour and Ithaca, working on the margins of profitability.
It is perhaps the biggest failure of the center-right in recent years that it has failed to make any kind of moral case for capitalism. The UK Conservatives sometimes seemed as hostile to growth as Labour. Indeed, it was Prime Minister Rishi Sunak, a Tory, who first introduced the windfall tax on oil and gas profits. It was Prime Minister Boris Johnson, another Tory, who said Britain could “lead the world in building a net-zero economy.” He also increased UK taxation to the highest levels since the 1950s.
The result has been a stagnant economy and an angry electorate. Industries, such as pharmaceuticals, are halting investment in the UK because their electricity bills are three to four times what their competitors are paying in the US. Voters are fed up hearing that green energy is so much cheaper than oil and gas when they pay some of the highest energy bills in the developed world.
It can’t go on like this. But it probably will.
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