Value Added to the UK Economy

Value Added to the UK Economy – Introduction and Background

The UK oil and gas industry has contributed significantly to the UK economy since 1968, most notably as a result of direct UKCS taxes, as well as indirectly via taxes collected from activities induced by the industry’s expenditure on investment and operations. The oil and gas industry also contributes to the UK economy through the global export of goods and services, which has had a very positive impact on the UK’s balance of trade, as well as the high level of employment the industry generates throughout the offshore industry itself and its supply chain.

Value Added to the UK Economy – Key Statistics and Commentary

As well as the significant contribution oil and gas production makes to tax revenues, the industry also has a large positive effect on the UK’s balance of trade. For example if all indigenously produced oil and gas had been imported in 2006, the balance of trade would have suffered by £30 billion, meaning the UK balance of trade in all goods and service in 2006 would have been in deficit by £84 billion rather than the actual figure of £54 billion.

UK Balance of Trade 1995-2006

The ‘value added’ measure of an industry is the value of its sales after deduction of its costs. In 2005 oil and gas production contributed £22 billion to the UK’s economy’s value added figure (representing 13% of all production and manufacturing industries). In addition to this figure, supply chain sales also represent a further sizable contribution to the UK’s value added figure which is not represented in the below diagram.

UK Oil and Gas Industry Gross Value Added 2005

Another major contribution the industry makes to the UK’s balance of trade is in the export of goods and services to other oil and gas regions throughout the world. After 40 years of development the UK oil and gas industry’s supply chain is second to none; as such it is ideally positioned to export its expertise, knowledge and products throughout the world. Since 1999, exports from supply chain companies based in Scotland alone have increased by 10 % per annum, whereas overall exports of manufactured goods have fallen by 5 % per annum. In 2005 sales to overseas markets amounted to £ 4 billion worth of activity. In future years, as expenditure in the global supply chain is predicted to increase, further growth in export sales from the UK’s supply and service companies is also expected to occur.

For further details on the industry’s contribution to the UK Economy, see the 2007 Oil & Gas UK Economic Report