Five things Prosper members must look for in the budget

We are all looking ahead with some trepidation to the chancellor’s second budget and Prosper has made a submission to Rachel Reeves on behalf of our members, with key recommendations for how to create a more prosperous economy and society.

1. Will the government prioritise home grown energy and clean growth?

The Energy Profits Levy (EPL) was introduced by the then chancellor, Rishi Sunak, in May 2022 to support households facing high energy bills. It is an additional 38% tax on the profits of oil and gas companies. Combined with existing charges on oil and gas production, firms in the sector pay a headline rate of 78%.

Under this regime – alongside a restrictive stance on licensing for oil and gas activities in the North Sea – the UK’s offshore energy industry is uninvestable. On Tuesday, the US corporation Exxon Mobil blamed UK government policy for the closure of the Mossmorran chemicals plant in Fife, with the loss of 400 jobs. The move is a further blow to Scotland’s industrial sector following the shutdown of the Grangemouth refinery earlier this year.

Producers have abandoned productive wells in the North Sea to invest elsewhere. As production falls, so does business for UK supply chain companies. Analysis from the industry trade body Offshore Energies UK (OEUK) has estimated there are 1,000 job losses a month from the sector. This impact is felt keenly not only in Aberdeen and north east Scotland but right across the UK, where a total of 200,000 skilled jobs are supported by offshore energy.

The EPL is also having an impact on the UK’s clean power mission and the green industrial transition – sectors which would provide jobs for workers moving away from oil and gas. Oil and gas revenues are essential for supporting investment in clean energy capabilities: most supply chain firms report that offshore wind, carbon capture and storage and hydrogen make up between only zero and a fifth of their turnover. A managed transition away from oil and gas, with a more gradual reduction in hydrocarbon production in the North Sea than is currently being seen, will provide time for the supply chain to develop renewable energy capabilities, and crucially allow (with sufficient government support) workers to reskill.

Analysis published on Thursday by the independent Fraser of Allander Institute warns that an “accelerated” (rather than “managed”) decline in the oil and gas sector will lose the economy £13bn by 2035 – equivalent to 0.5% of UK GDP. For Scotland this equates to £4bn, or 1.8% of Scottish GDP. Prioritising home-grown energy would be more in keeping with the UK’s climate goals. The exodus of the energy industry has made the UK increasingly reliant on more carbon intensive imports of oil and gas.

Prosper believes Rachel Reeves should prioritise domestic oil and gas production over imports by announcing an immediate replacement for the EPL with a permanent profits-based mechanism. That will enable an additional £40 billion of new capital investment in oil and gas projects, safeguarding 160,000 jobs with an additional 23,000 direct and indirect roles. From the government’s perspective, that extra investment and economic activity will generate an extra £10.4bn in tax revenue and halve emissions by 2030.

2. What decisions will the chancellor make on tax?

Speculation has been rampant as to what taxes the chancellor will change, or – more likely – increase, with Reeves making a high-profile speech from Number 11 Downing Street refusing to rule out tax hikes.

The tax rises announced in last year’s budget are forecast to raise an average additional £36.2bn a year – the highest tax raising budget since the war – through increasing Employer’s National Insurance Contributions (NICs), changes to Inheritance Tax (IHT) reliefs on agricultural properties and family-owned businesses and higher taxes on oil and gas through the EPL.

The last budget has had, and is continuing to have, a negative economic impact. Higher NICs, alongside increases to the national living wage, have damaged business confidence, making it more difficult to retain and recruit staff. Analysis by CBI Economics has found that the changes to IHT reliefs have already reduced investment, paused recruitment and cut community activities by family-owned firms. As a result, Scotland’s Gross Value Added (GVA) is forecast to be £1.2bn lower with 16,221 FTE jobs at risk, and there will be a net fiscal loss to the UK government of £1.9bn by April 2030.

We believe it is critical that this budget does not further damage confidence. The government must stabilise and reduce employer costs through tax and regulatory reforms. In particular, the chancellor should pause the planned implementation of the changes to IHT in April 2026 and introduce mitigations to safeguard UK ownership by family businesses. This could be done by retaining the existing reliefs, or deferral of the tax until a real cash event (such as a sale, change of control or dividends above a threshold).

3. Does the budget help deliver the UK’s modern industrial strategy?

In its first year in office, the new Labour government undertook significant policy development, publishing its industrial, trade and small-business strategies over this summer. These strategies were designed with important input from industry and civil society but the focus on eight growth driving sectors opened notable gaps, such as Scotland’s spirits sector. We are concerned that the Industrial Strategy Advisory Council (ISAC) lacks Scottish representation and have asked how it can reflect Scottish stakeholder views without members familiar with the economy north of the border.

However, now the government has taken the time and effort to devise an industrial strategy it must stick to it. Showing commitment to its published plans will raise the government’s credibility with industry and raise business confidence. That means backing Scotland’s and the wider UK’s competitive sectors on the world stage, such as life sciences AI. However, the recent cancellation of planned investment by AstraZeneca, and OpenAI’s decision to locate its first European data centre in Norway, demonstrates the risks facing these sectors. Stability in R&D tax incentives and action to tackle the UK’s especially high electricity prices will unlock the potential of these industries to power growth.

Although left out from the industrial strategy, the chancellor has an opportunity in the budget to back Scotch whisky – the UK’s leading food and drink export. US tariffs and significant recent hikes in spirits duty have cost almost £20 million a month in lost exports and more than 1,000 job losses in Scotland. But while spirits duty has gone up over the past two years, the Treasury has lost over £600m in revenue. A multi-year freeze would help to restore confidence and protect investment and jobs in the supply chain around the UK.

And more help needs to be given to consumers too. The abolition of tax-free shopping for international visitors by the previous government (following Brexit) left the UK as the only major European nation without such a scheme. The Association of International Retail has suggested that the restoration of tax-free shopping for all international visitors could create at least 73,000 jobs and generate £3.7bn in annual visitor spending, with benefits for all parts of the country. This would generate a net fiscal benefit for UK public finances.

4. Will Scotland’s regional economies receive any attention?

The UK government has proceeded rapidly with its devolution agenda to the English regions, through the introduction of integrated settlements for Mayoral Strategic Authorities and the Devolution Bill making its way through parliament.

But Scotland’s city-regions and rural regions are at risk of missing out. The Edinburgh-Glasgow combined region was highlighted in the industrial strategy as a key growth corridor alongside Oxford-Cambridge and Manchester-Liverpool – but with few details of what the UK government actually plans to do to support it. And with the first wave of city-deals running towards the end of their funding streams, there is scant information on what will replace them.

The chancellor should use this budget to progress the Scottish regional devolution agenda. That will require collaboration with the Scottish government to make available the integrated settlement approach to Scottish city regions on a level commensurate to their counterparts in England. And that discussion obviously needs to involve local authorities as well as private and third sector partners to develop a shared position about the decisions and delivery which should remain at a Scottish level or should be devolved.

5. What will be the impact of the late timing of the budget on the public and voluntary sectors?

The late timing of the Budget has delayed publication of the draft Scottish Budget until January 2025. This presents challenges for the Scottish government and creates uncertainty, including the risk of payment delays, to public bodies, local authorities and voluntary organisations. The UK government will need to work closely with the Scottish government to provide clarity about the consequences for the Scottish Budget and mitigate any impacts on funding payments. The voluntary sector is a key part of Scotland’s economy, employing 5% of its workforce, and providing essential services. However, the share of voluntary organisations reporting financial-related challenges in Scotland was 81% in spring 2025, 10% higher than in spring 2023. The UK and Scottish governments must work together to enable the Scottish government to fulfil its commitment to fairer funding for the sector by 2026.

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