With the General Election coming up in a matter of days, the political parties’ competing visions for the future of the UK Energy sector is a key battleground. While there is uncertainty in Aberdeen and across the North-east there is also an opportunity for our businesses to prosper.
Local reports about the possibility of major job loss in the energy industry and a lack of public confidence in campaign promises are leading the conversation heading into the election. With more than 3,400 registered enterprises operating in the energy growth sector and roughly 100,000 jobs potentially at stake, it is clear why the election outcome is so vital to continued prosperity in the North-east.
The Conservative and Labour parties have presented distinct plans for the energy sector, with the rate of transition to renewables and taxation being key areas.
The Conservative manifesto promotes a gradual transition to renewable energy with investment in carbon capture and storage projects and the expansion of offshore wind capacity.
Labour’s manifesto proposes a more accelerated shift towards renewable energy, with investment support coming from a National Wealth Fund and the establishment of GB Energy. Their manifesto does not support new oil and gas licences, with investment channelled towards accelerating clean energy projects, carbon capture and hydrogen manufacturing, which industry commentators have identified would require an extension of the UK Grid to around double its current capacity by 2030.
As for taxation, the Conservatives plan to maintain the current 75% Energy Profits Levy on oil and gas companies, with Labour proposing to increase it to 78%. Labour has stated the headline rate of corporation tax will not increase above 25%, while the Conservatives would like to reduce taxation when possible. Labour, however, proposes new incentives to support renewable energy investments.
Strategic steps for businesses to take
According to Graeme Sheils, Executive Chair at Azets, businesses in the energy sector need to focus on four key areas to take advantage of the opportunities available as the UK transitions towards net zero while managing business risk.
- Strategic planning and risk analysis, funding, tax efficiency and investment incentives, and international expansion
With change comes significant opportunity, and business owners should be focusing on comprehensive strategic planning, including risk analysis and mitigation. Having a clear financial plan and modelling the cash flow implications under different scenarios will help decision-making and ensure businesses are appropriately funded and resilient.
- Leveraging existing expertise in the oil and gas sector to support the renewable sector can provide pathways to future growth and stability
- Ensuring profits and growth finance are available for reinvestment to support new initiatives. Businesses should be looking to ensure the tax efficiency of their current activities as well as accessing additional tax incentives, such as R&D credits. Being informed on grant assistance and support schemes right through to the appetite for additional shareholders is also relevant
- Businesses that haven't already should consider following their customers and core services into international markets. It's an opportunity to extend revenue streams and reduce dependency on the domestic market, which can be particularly beneficial in mitigating risks associated with rapid policy changes
How business advisors can help
As longstanding UK business advisors, Azets Aberdeen is well-equipped to support energy businesses in the North-east through these transitions. The company can provide companies with valuable information and assistance to help simplify the process.
Graeme explains: "Our trusted business experts can offer business owners expert guidance on international expansion - from ensuring they are meeting all necessary legal and regulatory requirements in new markets, to providing comprehensive financial planning and risk analysis to navigate complex international landscapes.
"We can support funding and investment efforts to secure equity, debt finance, and grant assistance to assist expansion. Our experts in Aberdeen offer tailored planning services to optimize international growth strategies and ensure sustainable development.
"We can also help guide businesses through the election and beyond. Regardless of which party wins, there is support available to help your business prosper."