The effects of the Energy Profits Levy (EPL) are no longer confined to the oil and gas sector – they are now rippling through the entire North-east economy, according to a new report.
The Q1 2025 North East Quarterly Economic Survey (QES), released today by Aberdeen & Grampian Chamber of Commerce and law firm Gilson Gray, shows the windfall tax is threatening jobs, stifling growth and driving away investment far beyond the oil and gas sector.
The survey, completed by 123 regional businesses employing more than 53,000 people – 68% of which do not operate directly in the energy sector – reveals an economy in limbo, with the EPL emerging as the single most damaging policy affecting the North-east today.
83% of regional firms now cite taxation as their number one concern – a figure 24 points higher than the UK average.
And with oil trading at around $70 a barrel, firms say the continued application of the EPL is strangling cashflow, deterring investment and triggering a chain reaction across every part of the regional economy.
Russell Borthwick, Chief Executive at Aberdeen & Grampian Chamber of Commerce, said: “The Energy Profits Levy was sold as a short-term measure – but its long-term effects are now being felt far beyond the offshore sector.
“The North-east is an interconnected economy. If exploration and production slow down, so does manufacturing, hospitality, transport, professional services – the whole regional supply chain.
“This survey shows that the EPL is no longer just a tax on oil and gas profits – it’s a tax on confidence, growth and jobs in the North-east.”
The report shows a deepening downturn in several key indicators:
- Just 16% of businesses reported growth in domestic sales – the lowest figure since early 2021.
- Overseas demand is also weakening, with only 12% reporting export growth, well below the national figure of 20%.
- Almost one in four companies have reduced headcount – significantly worse than the UK average of 17%.
A staggering 89% of North-east firms now say labour costs are forcing them to increase prices – 16 percentage points higher than the UK average. The challenge is being further exacerbated by higher rates of personal income tax in Scotland, with 81% of respondents saying they believe this has created a competitive disadvantage for companies north of the border.
Meanwhile, 96% of companies say Scotland’s business rates system needs urgent reform – particularly for city centre, retail and hospitality sectors, many of which rely heavily on oil and gas-related spending.
Findlay Anderson, Partner and Head of Corporate at Gilson Gray, said: “Unsurprisingly, the Q1 report is dominated by taxes and their implications for North-east businesses. And the numbers are sobering as 83% of North-east businesses report taxation as their primary concern.
“The continuing application of the Energy Profits Levy to oil and gas operators, despite an oil price around $60-70 per barrel, is clearly having a significant effect on industry confidence which is cascading across the region.
“The national insurance changes announced in the Autumn Budget are also weighing on the minds of business leaders with businesses expecting restrictions to wage increases and plans for price hikes, headcount reductions and wider cost cutting. And almost every respondent (96%) agreed that the business rates system in Scotland needs urgent and fundamental reform.”
Long a powerhouse of UK exports and energy production, the North-east’s economic resilience is now under serious strain. Confidence about the future is eroding – just 39% of businesses expect turnover to grow in the next year, down from 62% two years ago.
The Chamber is calling for:
- A clear roadmap for winding down the EPL to restore investor confidence.
- Urgent reform of business rates and national insurance to relieve pressure on struggling sectors.
- Enhanced support for exporters, as global trade tensions escalate.
Mr Borthwick added: “It’s not too late to turn this around. But it will require more than warm words – it needs clear signals from government that they understand the damage being done and are ready to act. North-east businesses are strong, but they are being tested like never before.”
Read the full report here.