Aberdeen’s oil and gas sector is bracing for a new wave of uncertainty as a growing number of companies signal reduced investment and potential job losses, developments fueled by continued fallout from the UK Government’s windfall tax and broader economic volatility.
New research published this week by the Aberdeen & Grampian Chamber of Commerce and law firm Gilson Gray paints a bleak picture for the region’s energy economy. According to the latest North-east Quarterly Economic Survey, nearly one in four businesses surveyed in Aberdeen and Aberdeenshire are planning to reduce their workforce in the next three months, marking the highest level of anticipated cuts since the height of the COVID-19 pandemic in 2020.
The report cites rising taxation, policy instability, and declining forward orders as key factors undermining business confidence. Around 38% of firms reported falling sales in the last quarter, while only 30% expect turnover to improve over the next 12 months. Nearly half (49%) anticipate declining profitability.
Although the windfall tax, officially the Energy Profits Levy, was introduced under the previous Conservative government, it has since been upheld by Labour and remains a significant pressure point for energy producers operating in the North Sea. The levy raises the overall tax burden on oil and gas operators to 78%, a figure widely regarded by industry leaders as prohibitive.
The economic effects of this policy are already visible. Harbour Energy recently cut 250 UK jobs, citing the tax as a direct contributor, while Chevron confirmed its exit from Aberdeen after more than 50 years in the city.
Russell Borthwick, chief executive of Aberdeen & Grampian Chamber of Commerce, said the region is now feeling the consequences of what he described as “poor policy decisions being made in Westminster.”
“Our members are not calling for special treatment; they are simply asking for fairness and a stable environment in which to plan, invest, and grow,” he said. “The UK economy cannot afford to turn its back on the North Sea nor on the thousands of businesses in this region that depend on it.”
Of particular concern is that the downturn is not limited to the energy industry. Two-thirds of the firms anticipating cuts do not operate directly in oil and gas, highlighting the knock-on effect across the local supply chain and wider economy.
Findlay Anderson, Partner at Gilson Gray, echoed this sentiment, warning that the economic malaise is spreading: “Businesses are delaying investment decisions not because of a lack of ambition, but because the conditions for growth simply don’t exist right now. What we’re seeing is a loss of confidence not just in the energy sector, but across the supply chain and wider economy.”
In Case You Missed it:
The cumulative impact of the Energy Profits Levy, rising wage costs, and increased National Insurance contributions was cited by 73% of north-east respondents as a major barrier to growth compared to a UK average of 56%.
In response, a Treasury spokesperson pointed to the UK’s clean energy ambitions, saying, “We are making the UK a clean energy superpower, as shown by over £24 billion of investment by industry announced last week. We are working closely with the industry to ensure a stable investment environment that will be supported by our business tax road map and capping corporation tax at 25%, while developing a successor regime to the temporary Energy Profits Levy.”
However, with policy direction remaining uncertain and regional confidence faltering, business leaders in Aberdeen are warning that decisive and long-term thinking will be required if the North Sea is to remain an engine of economic growth for Scotland and the UK.
