Aberdeen & Grampian Chamber of Commerce has called on the UK Government to reduce the 78% tax burden on North Sea oil and gas producers as a key first step towards greater domestic energy security. 

The call comes as Donald Trump announced his intentions to impose tariffs on imports from Mexico, Canada and China – with further threats of hefty levies on trade with the European Union. 

While oil prices initially rose slightly on the back of uncertainty and fears of disruption to global crude supplies, analysts expect prices could fall with the impact of a global trade war hitting demand.

The Energy Profits Levy (EPL) is a ‘windfall tax’ imposed on energy production and in place until 2030, despite price conditions long having long returned to normal levels. It places a 38% additional tax rate on oil and gas production, in addition to corporation tax at 30% and the 10% supplementary charge. 

The EPL is only applied to domestic production from the UK Continental Shelf, not upon imports from overseas such as Norway (now the UK’s main supplier of gas) or upon US liquified natural gas (LNG), which is imported at four-times the carbon intensity of that produced in the North Sea.

UK oil production is now at an all-time low, and gas production, which has met more than half of domestic energy requirements for the last decade, is at near-record lows. Since the EPL was implemented, increased and extended by successive governments, investment and confidence in the North Sea has plummeted – as borne out by the results of AGCC’s most recent Energy Transition survey. 

Chamber chief executive Russell Borthwick said:  “The UK’s response to a global energy crisis in 2022 ran contrary to all good sense.

“Instead of bolstering domestic supply, enabling production from the North Sea and attracting new investment into the North Sea we have become increasingly reliant upon imports.

“That approach spooked the energy sector and its supply chain and knocked confidence at precisely the moment we should be driving the transition to net zero. 

“With the world on the brink of a trade war, we cannot afford to repeat these mistakes. 

“The UK is already heavily reliant upon imported gas from Norway and LNG shipped from the USA to meet our demands. 

“Any fluctuations in the price of oil and gas could be very damaging in a world where returns on production from the North Sea are already marginal. 

“The smart response would be to remove the EPL sooner rather than later – protecting our domestic energy sector and ensuring we’re not putting the UK economy at a significant disadvantage in an increasingly uncertain global context.” 

Pessimistic outlook

The Chamber’s call comes as a new survey reveals that Scottish businesses are increasingly pessimistic about their outlook for the coming year.

The latest Scottish Business Monitor from the Fraser of Allander Institute at the University of Strathclyde businesses points to a slowing economy and concerns around policy changes announced in both UK and Scottish Government Budgets.

Looking ahead, three-quarters of businesses expect the Scottish economic growth to remain weak or very weak in 2025. Businesses surveyed also indicate strong desire for greater economic certainty.

Sanjam Suri, Knowledge Exchange Fellow at the Fraser of Allander Institute, said: “The survey results in the third quarter of 2024 indicate that Scottish businesses were showing cautious signs of optimism.

“However, the last three months of 2024 coincided with a weakening economy coupled with policy changes – especially employer National Insurance Contributions (NICs) are weighing on the minds of businesses as they begin 2025.

“Businesses have weathered a lot of challenges since the pandemic – spiking energy costs, high borrowing costs and inflation. Businesses will plan for upcoming NIC changes in their own unique ways.”

More than 300 firms were quizzed in December 2024 and January 2025.