Rachel Reeves (Leeds West) (Lab) (Urgent Question): To ask the
Chancellor of the Exchequer if he will make a statement on North
sea oil and gas producers’ use of investment allowances to minimise
their liability under the energy profits levy. The Financial
Secretary to the Treasury (Lucy Frazer) Less than a fortnight ago,
my right hon. Friend the Chancellor set out a series of measures to
help British people at what we know is a difficult time. The oil
and gas...Request free trial
(Leeds West) (Lab)
(Urgent Question): To ask the Chancellor of the Exchequer if he
will make a statement on North sea oil and gas producers’ use of
investment allowances to minimise their liability under the
energy profits levy.
The Financial Secretary to the Treasury ()
Less than a fortnight ago, my right hon. Friend the Chancellor
set out a series of measures to help British people at what we
know is a difficult time. The oil and gas sector is making
extraordinary profits, not as a result of recent changes to risk
taking, innovation or efficiency, but as the result of surging
global commodity prices, driven in part by Russia’s war. The
Chancellor reassured the House that the Government
“will make sure that the most vulnerable and the least well off
get the support they need, and we will also turn this moment of
difficulty into a springboard for economic renewal and
growth.”
He also made the point that it
“is possible to both tax extraordinary profits fairly and
incentivise investment.”.—[Official Report, 26 May 2022; Vol.
715, c. 449-450.]
That is why we have introduced the energy profits levy—a new 25%
surcharge on the extraordinary profits that the oil and gas
sector is making. At the same time, the new 80% investment
allowance will mean that businesses will get a 91p tax saving for
every pound that they invest, providing them with an additional,
immediate incentive to invest. That nearly doubles the tax relief
available, and means that the more investment a firm makes, the
less tax it will pay.
The levy took effect from 26 May this year, and will be
legislated for via a Bill to be introduced shortly. It will be
phased out when oil and gas prices return to historically more
normal levels, with a sunset clause written into the legislation.
The levy will raise about £5 billion in revenue over the next
year, so that we can help families with the cost of living in the
shape of significant, targeted support to millions of the most
vulnerable.
I am here to talk about the cost of living crisis, but where are
Tory MPs today? On 26 May, the Chancellor announced a welcome
U-turn on his party’s opposition to a windfall tax—a policy for
which we had been calling since January. At the same time as that
handbrake turn, however, he created a tax giveaway for oil and
gas producers that undermined that tax. Only this morning, in a
statement to shareholders, the head of Serica Energy said that
these measures would offset a “large element” of the energy
profits levy.
All in all, we calculate that a third or more of any revenue from
the new levy might be handed straight back in tax breaks. This
cashback policy is typical of the sleight of hand that we have
come to expect from this Conservative Government, so can I ask
the Minister how much these tax breaks will cost? When will the
Government have the courtesy of sharing that analysis with the
House? How can the Minister be sure how much this new levy will
raise when the Chancellor has added this gigantic get-out clause?
Why are the Government incentivising investment in fossil fuels
over investment in home-grown renewables, which do not benefit
from the tax breaks in this announcement? Have the Government
even bothered to check what this means for our country’s net zero
target and climate commitments?
It is not just the cashback to oil and gas producers. Can the
Minister confirm that someone who owns three homes will receive
£1,200 of support for their energy bills —more than a low-income
family will get? This incoherent policy package was born from
Conservative chaos and also from the Chancellor’s embarrassment
and stubbornness. Rather than simply admitting that a windfall
tax was the right idea all along, he has introduced one with a
great big, costly, gaping hole in the middle of it.
The hon. Lady mentions that Labour has been calling for this levy
since January. She will know that January was not the right time
to introduce it because we did not know then what the price cap
would be. Ofgem estimated that in the week when this announcement
was made. She will also know that in January, inflation was not
at 9%. The Chancellor has taken this decision carefully,
considering the circumstances and not just making policy on the
basis of ideology.
I am sure the hon. Lady will know that Labour has made £100
billion of spending commitments, with less than £10 billion fully
funded. That would almost double our current borrowing. We
Conservative Members are aiming to ensure that we are fiscally
responsible with taxpayers’ money.
Let me respond to two other points that the hon. Lady made.
First, she will remember that when the policy was announced, we
said we had estimated that it would raise £5 billion for the
package of measures that we had put forward to support people
with the cost of living—as she said, that is what we are talking
about today. Secondly, she mentioned the importance of reaching
our net zero targets. She will know that the UK, under this
Government, has already decarbonised faster than any G7 economy,
and that there are many other tax levers for green energy,
including the super deduction and research and development tax
reliefs. She will know that we are consulting on broadening the
emissions trading scheme and that we have committed £1 billion to
a carbon capture and storage infrastructure fund, as well as £140
million to the industrial decarbonisation and hydrogen revenue
support fund. We are ensuring that we tax extraordinary profits
at the same time as protecting those who are struggling with the
cost of living.
(Vale of Glamorgan) (Con)
Two weeks ago, my right hon. Friend the Chancellor announced a
package of support that is far more generous than what the Labour
party ever proposed. It is focused on the immediate pressures
that families are facing up and down the country. It is also
funded by the energy profits levy, which focuses on and offers
support and relief for future investment. Does my right hon. and
learned Friend agree that we need not to only provide support in
the immediate term, as the Chancellor demonstrated, but to look
to the future energy security needs of the United Kingdom?
My right hon. Friend makes an important point, and that is one
reason why we set out the Prime Minister’s energy security
strategy recently. My right hon. Friend also makes the important
point that our package is more generous to those who are
vulnerable. Under our package, the lowest-income households will
receive double what Labour was proposing—£1,200, compared with
£600. Hard-working families will receive £550 under our proposal
compared with the £200 that they would have received under
Labour’s proposal.
Mr Speaker
I call the Scottish National party spokesperson, .
(Glenrothes) (SNP)
I welcome the acknowledgement from the Government yet again of
the vast wealth that currently lies under the waters of Scotland.
Oddly enough, in 2014, it had run out, but there still seems to
be an awful lot of wealth to be got from the North sea just
now.
Will the Minister explain why the windfall tax was only ever
applied to the energy producers? Why was it not applied to other
companies that, just through good luck, became mega-rich almost
overnight? I am talking about the big multinational tech firms,
online retailers and the importers of shoddy, useless personal
protective equipment that cost the public billions of pounds. Why
are they not facing a windfall tax, at the very least?
If an investment allowance is appropriate, why is it not being
restricted to investments in technologies that will reduce the
carbon footprint of the North sea? Why is it not being restricted
to helping to transform Scotland’s and the UK’s oil production
away from carbon-based fuels to other methods? Why is it being
used effectively to give an incentive to continue the
exploitation of our carbon resources?
The Minister said that the Government expect to get £5 billion
from the windfall tax. What would the amount have been if they
had not applied the investment allowance? How much are the oil
companies saving as a result? The National Audit Office and the
Public Accounts Committee have expressed concerns about the lack
of reliable detail to show that tax reliefs have had the result
intended. How will the Government know that they have? What steps
will they take to prevent fraudulent claims?
The hon. Gentleman makes a large number of points. The reason we
are taxing this sector is that these are extraordinary profits
that have been made not as a result of anything that the
companies have done, but because of the price of gas. The
Chancellor also said that he would look at electricity
generation, because that is riding on the back of gas prices.
On the hon. Gentleman’s point about decarbonisation and the oil
and gas sector, I point out that capital allowances will be
available for capital expenditure from the oil and gas sector
that makes the production of oil and gas less carbon-intensive,
which could include electrification.
(Waveney) (Con)
Ongoing investment in the North sea is vital to the transition to
a low-carbon economy and to the creation of long-term jobs in
emerging industries such as offshore wind, hydrogen and carbon
capture and storage, which are very important in coastal
communities such as the one that I represent. Can my right hon.
and learned Friend give an assurance that the levy will not
imperil that ongoing investment?
The points that my hon. Friend makes are set out in the energy
security strategy, because we recognise that the North sea will
still be a foundation of our energy security. It is right that we
continue to encourage investment in oil and gas as we transition
to renewables. My hon. Friend is right that the sector, along
with many others, provides important jobs for people in the areas
where generation is taking place.
(Leeds East) (Lab)
The additional tax breaks given to oil and gas firms mean that
the Government are handing billions over to the very companies
that are driving up people’s bills and fuelling climate change.
That is money that could have been used to insulate 2 million
homes, saving each household £340 every year. Are these tax
breaks for more fossil fuel producers not the very opposite of
what is needed to protect the planet, end our reliance on
expensive gas and, crucially, invest in insulation that could get
bills down?
With the greatest respect, I think that the hon. Member
misunderstands the policy. What we are introducing is a
significant tax on the oil and gas sector that will fund the most
vulnerable, so it is the firms handing money over, as he puts it,
to us. We have said that we recognise that companies should
invest, because it is good for jobs, good for investment, good
for our competitive industries and good for our energy security
for the future. We have recognised that we will give tax reliefs
if that investment is made.
(Brighton, Pavilion)
(Green)
Just six short months ago, the UK hosted COP26, and it remains
its president—not that we would know that from this appalling
policy from this Government. The Glasgow climate pact, which the
UK signed, commits to the
“phase-out of inefficient fossil fuel subsidies”,
so can the Financial Secretary explain on what grounds handing an
80% tax break to the dirty, dangerous and outdated energy of the
past could possibly be considered efficient, especially when new
fossil fuel production will do nothing to help with energy
security or affordability? It will simply be sold at global
prices on international markets. How is that climate
leadership?
The hon. Lady will know that we need to ensure energy security.
At the moment, oil and gas account for 50% of our domestic
energy. It is important that we transition, but that we
transition safely, as well as securing domestic energy
security.
The hon. Lady makes a very important point about our leadership
at COP. We led the world. We were the first country to introduce
net zero targets; many others followed. The Chancellor set out
packages to ensure private sector investment and Government
support for transitioning, and that is what this Government are
doing.
(Eltham) (Lab)
I welcome the fact that the Government have adopted Labour’s
policy and introduced a windfall tax on these profits. They have
had to be dragged kicking and screaming—[Interruption.] I am
sorry; should I give way to the Minister for Energy, Clean Growth
and Climate Change?
Hon. Members
Yes!
Mr Speaker
Hang on a minute. I think I will decide. Carry on, Clive. Come
on! You look like a person who never heckles himself.
(Eltham) (Lab)
I am the soul of discretion, Mr Speaker. I feel wounded—deeply
wounded!
As I was saying, the Government have had to be dragged kicking
and screaming to accept a policy that they previously described
as unnecessary and undeliverable. However, I fail to see how it
is an efficient use of taxpayers’ money, given that it will
incentivise the companies to offset the tax. Would it not have
been better to invest the money in insulating homes and ensuring
that people’s bills were brought down on a more permanent basis?
Would that not have been a much more effective policy?
The hon. Member will know, because I have said it this afternoon,
that according to our estimate we will be receiving £5 billion
from the oil and gas sector. Given that he mentioned insulation,
he may be interested to learn that the Government have committed
£3 billion over this Parliament to installing energy-efficiency
measures in up to 500,000 homes, saving low-income households
hundreds of pounds a year on their bills.
(Bristol North West) (Lab)
Clearly any additional tax cuts for the oil and gas sector should
have been targeted at renewable energy generation rather than
further drilling for fossil fuels. The Minister will know that
the Government intend to introduce a climate compatibility
checkpoint to ensure that all future decisions are in line with
our climate change commitments. Can she confirm that if there is
an overlap with the ongoing tax break for investment in fossil
fuel drilling, it will be checked against the compatibility
checkpoint?
As the hon. Gentleman will know, a consultation is ongoing, and
the Government will be responding to it in due course. I am sure
that he will read the report of our response with some
interest.
(Edinburgh West) (LD)
The Institute for Fiscal Studies—which, I am sure, understands
the policy—has been critical of it, saying that the windfall tax
is too generous and that
“It is hard to see why the government should provide such huge
tax subsidies and thereby incentivise even economically unviable
projects.”
Why are the Government providing incentives for projects of that
sort rather than raising the money that would help out desperate
families, and help them to feed their children?
What we have proposed is a windfall tax that will recover more
than what Labour proposes would recover. That money—£5
billion—will support those who are the most vulnerable, which is
why we have introduced the measure.
(Kilmarnock and Loudoun)
(SNP)
This policy confirms that we are seeing more take, take, take
from Scotland’s North sea oil and gas. The Government are taking
resources and taking money. Norway has the biggest sovereign
wealth fund in the world, but Westminster squandered all the
income from oil and gas from the North sea. At the very least,
will the Government reverse their decision and support the
Scottish carbon capture and storage cluster and make it a track 1
cluster, and will they consider matching the Scottish
Government’s £500 million just transition fund?
I think the hon. Member is aware that the Scottish CCS is a
reserve. [Interruption.] I am grateful to the hon. Member for
confirming that he is aware of that.
Sir (East Ham) (Lab)
It has been reported that this concession will deliver an
additional subsidy of £200 million to Shell for
its development of the Jackdaw field, which was going to go ahead
anyway. How can that be justified?
The investment relief should not be available for investments
that are deadweight. It should be for new investments. However, I
am happy to look into the point that the right hon. Member has
made.
(Aberdeen South) (SNP)
Jeremy Cresswell, the emeritus editor of Energy Voice in the
north-east of Scotland, highlighted his concerns that the
investment allowances put in place by the UK Government as part
of the windfall tax are directly for big oil, as opposed to for
big renewables too. Can the Minister clarify an earlier point
made in response to my hon. Friend the Member for Glenrothes
()? She said that
electrification could be part of the programme: surely it must be
part of it.
Yes, it could be, and I am sure that HMRC will consider those
reliefs when they are made. I hope that it is a should, but the
position is that it could. The tax will be paid by the largest
companies, to reiterate a point I made previously.
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