AN increase to the windfall tax on oil and gas profits will have a “hugely detrimental” effect on the industry, an MSP has claimed, as he invited the Chancellor to Aberdeen to “reflect” on her decision.

Rachel Reeves announced in a late-afternoon policy paper on Monday that she would be raising the Energy Profit Levy from 35% to 38%, taking the headline tax rate for the sector to 78% from November 1.

The shock announcement came without warning after the Chancellor’s fiscal statement in the Commons.

Reeves also confirmed an extension to the levy by one year to March 31, 2030 – the end of the financial year in which the current Parliament is due to finish – and have its investment allowances tightened.

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The Energy Profits Levy is the tax on the extraordinary profits of oil and gas companies operating in the UK and the UK Continental Shelf and was introduced in May 2022. It was increased by Jeremy Hunt in January last year who also announced it would remain in place until 2029.

Aberdeen Central MSP Kevin Stewart (below) has insisted the Chancellor’s latest move will severely damage the oil and gas industry and he has written a letter inviting her to the north east city to speak with workers “whose jobs are being put at risk” by the hike.

He claimed the increase to the tax would put the just transition to renewables at risk and lead to extensive job losses.

Stewart said: “I’m extremely concerned the Chancellor has chosen to raise and extend the Energy Profits Levy in her statement to Parliament.

“This decision will have a hugely detrimental impact on the oil and gas industry, puts the just transition at risk, and will lead to countless thousands of job losses.

“The industry, trade unions and workers have all warned of the hardship of the calamity and the destruction this decision will cause and it is galling this announcement has been made without meaningful engagement with the sector, unions and the communities of the north east of Scotland.

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“The Chancellor needs to hear these views firsthand and I’m inviting her to Aberdeen where I’m willing to host a public meeting so she can hear for herself the views of industry, the community, and most importantly the workers whose jobs are being put at risk.

“I’m sure their insight will allow her the opportunity to reflect, reevaluate and reconsider the decision she has made.”

In his letter, Stewart pointed to the Aberdeen and Grampian Chamber of Commerce having warned that the Chancellor will risk losing £20 billion in revenues for the Treasury because of the decision.

David Whitehouse, the chief executive of trade association Offshore Energies UK, said the announcement had been made without meaningful engagement with the sector.

“This is not partnership working between government and industry,” he said.

“We recognise the Government has significant spending challenges to manage but today’s announcement will only serve to rock confidence further.

“The offshore energy sector supports over 200,000 jobs.  These are real people, working in our energy industry today. Today’s announcement jeopardises jobs in communities across the UK.”

The announcement came after Reeves said she had uncovered a £22 billion black hole in the public finances.

She said she had made “tough decisions” based on the position, which also included announcing that from this autumn, pensioners in England and Wales not on pension credit or other means-tested benefits will no longer get winter fuel payments worth between £100 and £300.

Scottish Secretary Ian Murray has since claimed it is “completely wrong” to say that Labour politicians knew public spending cuts would be needed prior to the election.

He claimed the black hole had been "hidden" by the Conservatives, but Labour is continuing to come under fire after repeatedly pledging before the General Election that there would be "no austerity" under the party.