Tax revenues from the North Sea rose by £7bn to their highest ever levels last year as windfall levies and higher commodity prices saw receipts surge.
Annual Government Expenditure and Revenue Scotland (GERS) figures published on Wednesday show revenues from offshore oil and gas activity reached a record £10.6 billion in 2022-23, as war in Ukraine drove huge spikes in energy prices and a move to recoup profits from oil and gas firms.
Record energy sector revenue mean Scotland’s notional deficit – some £19.1bn, equal to 9% of GDP – has continued to fall at a faster pace than that of the UK, with the North Sea making up £9.4 billion towards the gap between revenue and public spending.
Excluding oil and gas revenues would leave a deficit of 15.1% of GDP, or £28.5 billion.
Industry leaders said the contribution highlighted in GERs figures showed “critical” role of the energy sector to the economy – and that government should look to prioritise further investment rather than presuming against oil and gas.
Total revenue across Scotland increased by 20.7% (£15 billion) over the period, compared with 11.3% for the UK as a whole – around half of which (£6.9bn) came from a rise in oil and gas revenue, as well as a £1.9 billion increase in income tax receipts amid a wider post-pandemic economic recovery.
GERS calculations are estimates which apportion a share of North Sea revenue to Scotland based on the geographical location of oil and gas fields.
They show oil and gas revenues derived from four main sources: petroleum revenue tax, corporation tax, licence fees and the Energy Profits Levy (EPL) – an additional 35% tax on UK oil and gas profits which takes the combined rate of tax on sector profits to 75%.
According to the figures, the EPL added roughly £4.6bn to returns during the period.
It is this in particular which is responsible for driving revenues up more than fourfold on the £2.6bn raised last year, and more than 20 times the £522 million raised in the pandemic-struck 2020-21 period.
Overall North Sea production increased by 2% in 2022 to 78 million tonnes of oil equivalent, most of which was driven by increases in production of gas, which rose by 16%, whilst oil production continued to decline, falling by 8%.
The impact of electricity and renewables on tax revenues is less clear. Scotland’s share of the Electricity Generator Levy, worth around £200 million in 2022-23 and more in future years, is not yet captured in GERS.
The same goes for licence fees derived from the 2022 ScotWind round, which are yet to be published in the Crown Estate Scotland’s full-year accounts.
Industry calls for re-investment incentives
Cabinet Secretary for Wellbeing Economy, Fair Work and Energy, Neil Gray said: “While the record revenues from the North Sea show the extent that the UK continues to benefit from Scotland’s natural wealth, these statistics do not reflect the full benefits of the green economy, with hundreds of millions of pounds in revenue not yet captured.”
Mr Gray also alleged that £1 billion of the notional deficit is the direct result of the UK Government’s “mismanagement” of public finances.
“An independent Scotland would have the powers to make different choices, with different budgetary results, to best serve Scotland’s interests,” he added.
Industry leaders said the extent of revenues showed the danger of adopting a hostile stance on North Sea oil and gas.
Aberdeen & Grampian Chamber of Commerce (AGCC) policy director Ryan Crighton – a vocal critic of the windfall tax – said: “Today’s figures show there remains a marked difference between what Scotland spends on public services and what it raises in taxes, to the tune of £19 billion.
“AGCC has long called for a business environment which stimulates enterprise, allows companies to grow and reinvest and ensures that Scotland remains competitive in UK and global terms from a tax perspective.
“What these figures reveal is that our energy sector is critical to any future economic success Scotland might hope to achieve, with the North Sea making up £9.4 billion in terms of the gap between revenue and public spending.
“Any other nation on earth would be incentivising reinvestment now to turbocharge our transition to net zero and utilising the existing expertise that exists within our sector to achieve that, rather than adopting a presumption against oil and gas.”
Mike Tholen, sustainability and policy director at trade body Offshore Energies UK said the GERS figures showed the sector’s “significant economic contribution” through taxationand its support of some 90,000 jobs.
“Our members are the driving force for the economy supporting Scotland in ensuring security of energy supply while helping to meet its net zero ambitions.
“As we build that net zero future there is no simple choice between oil and gas on the one hand, and renewables on the other.
“Support from both the UK and Scottish Governments is key to helping manage the decline of oil and gas effectively to maintain the supply of domestic energy, while protecting jobs. This will help ensure the growth of new economic opportunities, while enabling the sector to build the critical infrastructure needed to transition to a net zero future.”