North-east business leaders called on the Chancellor to scrap windfall taxes on the energy sector, as research suggests Aberdeen is the slowest-growing economy in the UK.
Ahead of a Spring Budget announcement this week, Aberdeen and Grampian Chamber of Commerce (AGCC) called on Jeremy Hunt to abandon the Energy Profits Levy (EPL) in order to unlock investment and “unblock the North-east economy.”
It comes as accounting giant EY finds the levy is acting as a “barrier to investment” amid a forecast that expects Aberdeen to be the slowest-growing economy in Scotland over the next three years.
The Granite City is expected to see average gross value added (GVA) growth rate of 0.8% between now and 2027, compared with a UK economy predicted to grow by around 1.9%.
It puts the city amongst a cohort of hard-hit regions in the north of England, alongside Blackpool (1.1%), Warrington (1.3%), Cumberland (1.3%), as well as Dundee (1.4%).
And despite “reasonable” GVA growth of 0.7% expected this year, Scotland as a whole is forecast to see a 0.3% decline in employment.
EPL impact continues to be felt
The EPL – also referred to as the windfall tax – was raised in response to record energy profits seen amid spiking prices in 2022. It raised £2.6bn in its first year.
According to reports last week, Chancellor Jeremy Hunt is considering extending the levy, due to expire in March 2028, though the move is “low down the list” of potential measures.
Labour, meanwhile, has vowed to increase the headline tax rate from 75% to 78%, while also removing what it described as “loopholes” providing tax breaks for reinvestment – a move which sector representatives said could be catastrophic to the industry.
EY analysis finds that GVA from the ‘mining and quarrying sector’ – which also covers oil and gas production – is expected to shrink by about 3.2% this year, with a knock-on effect on the local economy.
“This is likely explained by challenges in the oil and gas sector, upon which Aberdeen’s economy is heavily reliant, including the long-term decline in North Sea oil production,” the group says.
It finds the decline “largely driven by structural changes” as oil fields reach the end of their productive life.
“However, policy has played a part — the Scottish government is ambivalent around new investment in oil and gas production, and whilst the UK government is warmer to the idea, the imposition of significant windfall taxes has also acted as a barrier to investment.”
‘Aberdeen pays the price’
Despite a decline in oil prices and profit levels, AGCC says the sector is still paying over £1 billion per month in tax, including £587 million in corporation tax which does not include windfall levies.
Meanwhile it points to the local impact of hundreds job losses at producers such as Harbour Energy and Apache.
Ryan Crighton, policy director at Aberdeen & Grampian Chamber of Commerce, said: “The windfall tax needs to go – it is not acceptable for Aberdeen to pay the price for economic problems it did not create.
“The North Sea is being used as a cash cow to plug financial holes created by the financial mismanagement of others – and Aberdeen is clearly paying the price. Businesses in the North-east are watching through their fingers as politicians of all parties fall over themselves to make things worse.
“After years of stagnation, the UK economy desperately needs investment to grow. North Sea firms are standing by ready to invest £200billion – but they need the right conditions. Jeremy Hunt has the chance to put that right on Wednesday.”
Mr Crighton also reiterated calls for an independent body to manage energy policy, a request echoed by trade groups including Offshore Energies UK (OEUK).
“If nothing changes, and we get five more years of the same muddled policy, discretionary capital will continue to move overseas, the transition will stall, and a world class supply chain built up over decades will go,” added Mr Crighton.
“We can – and must – do better.”
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