New research finds that the UK’s energy sector is at a critical turning point, with a deteriorating investment environment putting jobs, tax revenues and regional economies at risk.
The research is accompanied by a podcast, in which Institute Director Professor Mairi Spowage discusses the current state of the energy industry, particularly in the North East of Scotland, with Professor Paul de Leeuw, Head of Energy Transition Institute at Robert Gordon University, and Hayley Strachan, Global Employer Services leader in Scotland for Deloitte.
The research discusses the current environment, where internationally mobile workers are increasingly being deployed overseas to work on projects in more favourable regimes, and finds that it could have implications for the economy for as long as the next 25 years. This “quiet” displacement of activity risks being largely invisible to policymakers; rather than a visible rise in unemployment, skilled energy workers are finding work abroad or exiting the industry altogether.
This further risks a gradual downturn in UK-based economic activity, particularly in high-value supply chain roles, and a likely erosion of high-wage tax revenues – at the very moment when the UK is seeking to accelerate its energy transition and boost growth.
Working with scenario data from the Energy Transition Institute at Robert Gordon University, the research compares two plausible paths for the UK’s oil and gas sector over the next decade: a “Managed Decline” and an “Accelerated Decline”. Under both scenarios, oil and gas activity and employment fall sharply by 2035, but a faster decline has materially larger consequences.
For the UK as a whole, the gap between the two scenarios is worth around £13 billion in gross value added (GVA) in 2035 (2023 prices) – equivalent to around 0.5% of projected UK GDP. For Scotland, where around 82% of direct and a substantial share of indirect activity is located, the difference is around £4 billion, or 1.8% of the Scottish economy – similar in scale to the entire spirits and wines industry. For the North East of Scotland, the gap could amount to around £1 billion, or roughly 5% of the regional economy.
The report places these forward-looking scenarios in the context of recent experience. Since the 2015 oil price shock, the North East of Scotland economy has already contracted significantly, with output still around 10% below pre-pandemic levels in 2023, compared to modest growth for Scotland as a whole. Without a more stable and competitive investment environment – including a clearer long-term approach to the Energy Profits Levy and capital allowances – there is a real risk of repeating, and amplifying, this pattern of decline just as new low-carbon opportunities should be scaling up.
The report’s author, Professor Spowage said: “The energy transition is often framed as a story of new opportunities – and those opportunities are real. But right now, the UK is not doing enough to keep investment, supply chains and high-value jobs here at home.
“The industry is at a crossroads: decisions taken in the next couple of years will shape what the economy of 2030 – and even 2050 – looks like for Scotland, the North East and the UK as a whole. If governments want growth, they will need to focus not just on new industries, but on creating the conditions for a managed, orderly transition from our existing energy base.”
This episode is the fifth in a series partnering Deloitte with the Fraser of Allander Institute. In this series expect lively debate, expert insights, and thought-provoking discussions that will reshape the conversation around Scottish economic growth. Culminating in a landmark event in March 2026, this collaboration will unveil ground-breaking insights and provide a platform for action. This Scottish-focused initiative builds upon Deloitte’s UK-wide Growth 35 programme, painting a bold vision for a thriving UK economy by 2035.
Authors
Mairi is the Director of the Fraser of Allander Institute. Previously, she was the Deputy Chief Executive of the Scottish Fiscal Commission and the Head of National Accounts at the Scottish Government and has over a decade of experience working in different areas of statistics and analysis.