Scottish North Sea tax revenues drop, fuelling debate on oil and gas industry’s future
UK government to soon decide whether to approve production at the Rosebank and Jackdaw fields
Scotland’s North Sea oil revenues declined by 12 per cent to £3.2bn in 2025-26, according to new data, but stronger growth in overall tax receipts reduced the nation’s fiscal deficit within the UK to 10.9 per cent of GDP.
Tax and licensing revenues from the North Sea oil and gas industry, which peaked in 2008-09, reached their last high in 2022-23 after Russia’s full-scale invasion of Ukraine, before falling every year since then.
In 2024-25, Scotland’s share of tax from the industry amounted to £3.6bn, revised down from the £4.1bn reported in last year’s Government Expenditure and Revenue Scotland report.
The decline, driven by a period of lower oil prices during 2025, comes amid calls, including from the Scottish National Party, for the UK to bring forward the replacement of the “windfall” Energy Profits Levy (EPL) with a new mechanism designed to tax higher oil and gas profits while encouraging investment in the mature North Sea basin.
Environmentalists argue, however, that declining production of oil and gas in the North Sea should accelerate the shift to renewable energy to secure long-term job creation.
The UK government is set to announce whether production at the Rosebank and Jackdaw oil and gas fields will be approved after the closure of consultations this month.
Scotland accounts for 80 per cent of all UK North Sea revenue, which is largely made up of the EPL and corporation tax.
Scotland’s notional net fiscal balance — the difference between public expenditure and revenue — narrowed by 0.6 percentage points to minus 10.9 per cent of GDP, compared with minus 11.5 per cent in the previous financial year. The UK’s fiscal balance narrowed by 1 percentage point to minus 4.2 per cent.
The Scottish net fiscal balance was minus £25.3bn, improving by £600mn over the year. Revenue grew by £6.3bn, faster than the additional £5.7bn in expenditure.
The largest increases in revenue came from an extra £2.4bn in national insurance contributions and £1.5bn in income tax receipts. These reflected the UK’s decision to raise the rate of employers’ NICs from April 2025, Scottish income tax policy, inflation and strong nominal earnings growth.
Jenny Gilruth, Scotland’s deputy first minister and finance secretary, said total and devolved revenues had grown faster than spending. “We are delivering sustainable finances,” she said.
Per capita government spending in Scotland in 2025-26 was £22,281, £2,720 higher than the £19,561 per person in the UK.
“These statistics clearly demonstrate the value to people in Scotland of being part of a strong United Kingdom,” said Scottish secretary Douglas Alexander. “By pooling and sharing resources across the country, people living in Scotland benefit from significant additional public spending.”
The Fraser of Allander Institute at Strathclyde University said the “backwards-looking” report outlines Scotland’s current fiscal position and only sets out some of the parameters considered in discussions around independence.
“To use this figure to say anything about an independent Scotland, in the absence of much-needed specific details about any future constitutional arrangement, is to misuse it,” the research institute said on Tuesday.
João Sousa, senior research economist at the Institute for Fiscal Studies, said the data was “a reasonable starting point” for understanding the fiscal issues an independent Scotland would face.
“A deficit on the scale currently implied would be unsustainable and require some combination of higher taxes or lower spending – unless economic growth could be sustainably and significantly increased, which is certainly possible but far from assured.”