A deeply anxious Scottish business community is calling on the Chancellor Rachel Reeves to take bold action in next week’s Budget to stimulate the UK’s floundering economy.
It comes as the United Nations COP30 in Belem in Brazil failed to secure a climate deal but instead has pressed on with a ‘road map’ for nations supporting climate change and moves to net zero. Britain is behind the roadmap, along with dozens of other nations, however Saudi Arabia, the world’s largest oil exporter, has opposed plans to transition away from fossil fuels.
This comes at a critical time in Scotland for future oil and gas activities. Member organisations, such as Prosper and the Institute of Chartered Accountants in Scotland, are urging swift action in the face of a UK and Scottish economy which is under increasing pressure.
Prosper said the closure of the Mossmorran chemical plant in Fife, with the loss of 400 jobs, is the latest critical blow to Scottish business, with the blame placed on UK government policy.
The Fife plant’s owners, ExxonMobil, said the current economic and policy environment combined with market conditions and high supply costs made the closure inevitable. The US company says that it is losing £1 million per week at its plant, due to high energy costs, and despite having a highly skilled workforce.
The move is a further critical blow to Scotland’s industrial sector following the shutdown of the Grangemouth refinery earlier this year and follows the introduction in May 2022 of the Energy Profits Levy (EPL), which was aimed at supporting households facing high energy bills.
The EPL is an additional 38 per cent tax on the profits of oil and gas companies. Combined with existing charges on oil and gas production, firms in the sector pay a headline rate of 78 per cent. This comes when it has been revealed that wind energy generators are being paid hundreds of millions of pounds for renewable energy that is being wasted because there are no national gird connections.
Sara Thiam, Chief Executive, Prosper said: “Under this regime – alongside a restrictive stance on licensing for oil and gas activities in UK waters – the North Sea offshore energy industry is now un-investable.
“It is vital that the Chancellor does all she can to lift this – and other burdens – off the country’s energy sector.”
Meanwhile Bruce Cartwright CA, the retiring CEO of ICAS, said: “The UK needs a Budget that backs businesses as the engines of economic growth. We urge the Chancellor to focus on policies that stimulate enterprise, encourage investment, and provide long-term clarity for the business community.”
He says the annual round of tinkering with already overlong and complicated tax legislation fuels further complexity and uncertainty.
“It also lacks transparency and doesn’t promote better understanding of the tax system. Any broader tax reform needs to be developed in a way that draws on the experience and expertise of business and doesn’t risk inhibiting growth at a time when investment and confidence are crucial.
He said if the UK Government wants to raise taxes, it must be absolutely clear how that money will be spent – and how it will improve efficiency and productivity.
“Both the UK and Scottish Governments need to define what improving performance means in practice and set out clear plans for achieving this. It can’t just be window dressing ahead of elections every five years.
Businesses across Scotland are deeply frustrated by increased level of taxation which is not matched by an improvement in public services and vital infrastructure.
“The Government must demonstrate through action, not just words, that it’s committed to a sustainable growth strategy. Mixed messages, such as increasing the real cost of doing business through taxation, only undermines confidence. Businesses need certainty and predictability to plan, invest, and create jobs,” he said.
The message come as report shows the UK’s critical role in Europe integrated oil and gas system.
Wood Mackenzie, in partnership with Ithaca Energy, an energy company, and Offshore Energies UK (OEUK), a trade body, has published a report on UK Oil Flow Analysis and the UK’s role within the European energy system. This focuses on UK crude oil production and the markets for crude oil and refined oil products.
Malcolm Forbes-Cable, vice president of energy consulting at Wood Mackenzie, said: “The UK’s importance in the European energy system is too often overlooked. Europe is dependent on imports for 80 per cent of its crude oil supply. The UK is the 2nd biggest producer of oil in Europe with almost 90 per cent of production consumed domestically or in Europe. As UK refining capacity declines it is increasingly dependent on European refined oil product imports to make up the domestic shortfall. The UK is integral to the European energy system.”
David Whitehouse, CEO, Offshore Energies UK, said: “In a volatile world, with Ukraine on our collective doorstep, the UK government must back the domestic production of this vital resource with practical reform of the Energy Profits Levy in the coming Budget.”
He said the UK must not continue to watch as jobs and investment are lost and imports ramp up from around the world, undermining the UK’s supply chains, communities and tax revenues, and those of our European neighbours.
“As the UK scales up renewables, it must not lose sight of the fact its oil is needed for decades to come. As the continent’s second largest producer, the UK Government must back firms and their workers so the whole of modern industrial Europe can compete in the global race for investment, growth and security.”
“This Budget is a pivotal moment to show that economic growth is a top priority.”
Prosper highlighted research published by the independent Fraser of Allander Institute, which warns that an “accelerated” (rather than “managed”) decline in the oil and gas sector will lose the economy £13bn by 2035 – equivalent to 0.5 per cent of UK GDP. For Scotland this equates to £4bn, or 1.8 per cent of Scottish GDP.
Producers have abandoned productive wells in the North Sea to invest elsewhere. As production falls, so does business for UK supply chain companies. Analysis from Offshore Energies UK (OEUK) has estimated there are 1,000 job losses a month from the sector. This impact is felt keenly not only in Aberdeen and north-east Scotland but right across the UK, where a total of 200,000 skilled jobs are supported by offshore energy.
Prosper believes Rachel Reeves should prioritise domestic oil and gas production over imports by announcing an immediate replacement for the EPL with a permanent profits-based mechanism. Prosper warned the EPL is also having an impact on the UK’s clean power mission and the green industrial transition – sectors which would provide jobs for workers moving away from oil and gas.
Meanwhile Professor Paul Johnson speaking on tax at the recent ICAS Annual Conference, in London, said: “If you do need to increase taxes then you need to do it on income tax or VAT, not on businesses or employers. So, the politics and economics crash up against each other. You need clarity on what the model for growth is, and we are so far away from achieving that. The Government is talking a good game but not following it up in their actions. They need to change their actions as well as their words if we’re really going to get that growth”.
