Months of industry lobbying fell on deaf ears as Chancellor Rachel Reeves confirmed in yesterday's Budget that the windfall tax on North Sea oil and gas producers will be increased and extended.

The Energy Profit Levy - first introduced at a rate of 25% in May 2022 in the wake of soaring energy prices - will rise from its current rate of 35% to 38% from November 1. It takes the headline rate of tax on oil and gas activities to 78%, which is among the highest in the world.

Brought in as a temporary measure, the levy has also been extended by Ms Reeves by a year to March 2030.

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The changes also include scrapping the levy's 29% investment allowance, which lets companies offset tax from capital that is re-invested. Capital allowances on the other taxes, which had been thought could be under threat, will remain unchanged.

Though widely expected, Ritchie Whyte of Aberdein Considine said the announcement has raised "genuine apprehension" among the firm's clients in the north-east about the impact on investment and the consequential impact on firms in the sector's supply chain.

Phil Jenkins, chief executive of international corporate finance firm Centrus, said the government appears to be on "a very quick path towards killing off investment in North Sea oil and gas".

"While the firm commitment towards a transition to clean energy is welcome, the UK is likely to continue using oil and gas for many years to come," he said. "It is questionable from a jobs, tax revenues and national security perspective whether it is wise for the UK to become more rather than less reliant on imported oil and gas during a period of geopolitical instability."

Energy analyst Maurizio Carulli at Quilter Cheviot, agreed there will be a negative economic impact on what remains a "significant industry".

"Ultimately, this will hamper investment made by energy companies, make the UK portion of the North Sea a less appetible area for capital investment, and for gas, increase the need for imports in the future, which will potentially affect prices consumers pay and potentially compromise the priority of achieving energy security," he said.

Harbour Energy is reportedly looking to sell stakes in its North Sea oilfields and is reviving plans for a US listing, while oil major Exxon Mobil completed its exit from the basin in July. Smaller operators, including Serica, have said they are seeking opportunities overseas.

Even so, shares of North Sea producers rose following the announcement which analysts at Jefferies said was "a very positive outcome" versus worst-case expectations.

David Whitehouse, chief executive of trade body Offshore Energies UK, welcomed a government commitment to consult with the industry on how the oil and gas tax regime can encourage investment and respond to changes in the oil price which has fallen for much of this year amid lower global demand.

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"With an increase in tax despite commodity prices at recent lows, there is no hiding that this is a difficult day for the sector," Mr Whitehouse said.

“Oil and gas companies, our world class supply chain and our highly skilled people will support the energy transition. We will not be successful without them."

Russell Borthwick, chief executive of the Aberdeen and Grampian Chamber of Commerce, said there was no justification for what he called the "super tax" faced by oil and gas producers in the UK.

“The damage being done to the North Sea is clear for all to see," he said. "In the past week alone one major has put the for sale signs up on six fields, another has reported a 30% dip in profits and we have one operator paying millions to relinquish a licence rather than develop a loss-making field.

“Without significant long-term reform, this is not a fiscal foundation for growth; it is quicksand through which a world-class industry and its supply chain could disappear."