Energy (Oil and Gas) Profits Levy Bill
Wednesday 13th July 2022
(2 years, 4 months ago)
Lords ChamberEnergy (Oil and Gas) Profits Levy Act 2022 View all Energy (Oil and Gas) Profits Levy Act 2022 Debates Read Hansard Text Amendment Paper: Committee of the whole House Amendments as at 11 July 2022 - (11 Jul 2022)
Baroness Penn (Con)
My Lords, we will take a little more time over this Bill. We are here to debate the Energy (Oil and Gas) Profits Levy Bill, introduced in the House of Commons. It may be helpful to start with a little of the context behind the Bill.
People across this country are facing rising energy costs and an increase in their overall cost of living. Of the basket of goods and services we use to measure inflation, a record proportion are seeing above-average price increases. Indeed, this country is now experiencing the highest rate of inflation we have seen for 40 years, and this is causing acute distress to the people of this country.
In May the Government announced a series of measures to help the British people during this difficult time—a period in which we have seen prices in oil and gas reach new heights. Oil prices have nearly doubled since early last year and gas prices have more than doubled. This is a global phenomenon, driven by factors out of any single Government’s control and in part by Russia’s war.
With increased prices at this global level, profits from oil and gas extraction in the UK have also shot up. These are unexpected, extraordinary profits, above and beyond what forecasters could have expected the sector to earn. Because of these extraordinary profits and to help fund more cost of living support for UK families, the Government are introducing the energy profits levy. This temporary levy is a new 25% surcharge on these extraordinary profits. When oil and gas prices return to historically more normal levels, it will be phased out. However, we have a responsibility to help those who, through no fault of their own, are paying the highest price for the inflation we face.
I now turn to the content of the Bill. As set out in the energy security strategy, the North Sea will still be a foundation of our energy security. Indeed, currently around half of our demand for gas is met through domestic supplies. In meeting net zero by 2050, we may still use a quarter of the gas that we use now. It is therefore necessary to encourage investment in oil and gas, encouraging companies to reinvest their profits to support the economy, jobs, and the UK’s energy security.
It is possible to both tax extraordinary profits fairly, and to incentivise investment. That is why, within the energy profits levy, a new super-deduction style relief is being introduced to encourage firms to invest in oil and gas extraction in the UK. The Government expect the energy profits levy, with its investment allowance, to lead to an overall increase in investment. The new 80% investment allowance means that businesses will get a 91p tax saving overall for every £1 they invest, providing them with an additional immediate incentive to invest. This nearly doubles the tax relief available and means that the more investment a firm makes, the less tax it will pay. It means that the allowance can be claimed when the spending on the investment is actually incurred. This is unlike the allowance under the existing permanent tax regime for oil and gas companies, which can be claimed only once income is received from the field subject to the investment. As noble Lords may know, this can take several years.
I will provide some clarity on what the investment allowance will apply to. First, if capital or operating expenditure qualifies for the supplementary charge allowance, it will qualify for the energy profits levy allowance. Since the levy is targeted at the extraordinary profits from oil and gas upstream activities—that is, the profits that came about due to the global price increases—it makes sense that any relief for investment must also be related to oil and gas upstream activities. Secondly, such spending can be used to decarbonise oil and gas production, through electrification, for example. Therefore, any capital expenditure on electrification, as long as it relates to specific oil-related activities within the ring-fence, will qualify for the allowance. Examples of electrification expenditure on plants and machinery are generators, which include wind turbines, transformers and wiring.
I remind noble Lords that there are other tax and non-tax levers to support non-oil and gas investments, such as in renewables. These levers include the super-deduction and the UK’s competitive R&D tax credit regime. Importantly, returns on these investments are taxed at 19%, rather than 65%, as for UK oil and gas profits.
The Government have been listening closely to industry feedback. Late last month, the former Chancellor met industry stakeholders in Aberdeen to discuss the levy and make sure it works as the Government intend. Since then, the Government made a change to the legislation, which is reflected in the Bill. Tax repayments that oil and gas companies receive from the petroleum revenue tax related to losses generated by decommissioning expenditure will not be taxed under the levy. These repayments are typically taxed under the permanent tax regime, but, since wider decommissioning expenditure is also left out of account for the levy, this change is consistent and fair. I reassure noble Lords that, with this change, the Government still expect the levy to raise around £5 billion over the next year.
Finally, I turn to how long the levy will be in place. It will take effect from 26 May this year, and it will be phased out when oil and gas prices return to historically more normal levels. The sunset clause in the Bill ensures that the levy is not here to stay. Very few taxes have expiry dates set in law, so this provision demonstrates the Government’s commitment to keeping the levy temporary, and it gives oil and gas companies further reassurance, as they seek to plan their investments.
The Bill, and the levy it legislates for, should be seen against the backdrop of the reality that we find ourselves in: people are in hardship across the country, while businesses in the UK oil and gas sector have made profits surpassing their expectations, reflecting the extraordinary global context. Through the Bill, the levy will raise around £5 billion of revenue over the next year. This is not about maximising revenue for the Exchequer but about targeted objectives: to help with significant targeted support for millions of the most vulnerable, and to encourage the oil and gas sector to reinvest its profits to support the economy, jobs and the UK’s energy security. For these reasons, I commend the Bill to the House.
Viscount Hanworth (Lab)
My Lords, this legislation, which is being rushed through Parliament, has the ostensible purpose of addressing the crisis of fuel poverty that is affecting an increasing number of households. The crisis is a consequence of the escalation of fuel prices in the international energy markets. Temporary measures are to be taken to tax windfall profits that are accruing to the domestic energy companies, which are the providers of oil and gas. The Labour Party has called for such measures, and the present legislation should be seen as a welcome response by the Government. Therefore, it might seem surly and ungracious to call this legislation into question, but that is what I intend to do.
Although the Explanatory Notes suggest that the measures are intended to help fund more cost of living support for UK families, they are not directly connected to this purpose. The additional energy taxes or levies have not been hypothecated in this way; that is to say that they have not been pledged in a legally binding manner to serve the purpose of alleviating fuel poverty. The levies will serve to bolster the tax revenues of the Government, which sustain a multitude of purposes. Nevertheless, the Government can expect to derive some significant political capital by imposing the levies.
The current high prices that we are paying for gas and petrol have been determined in the international markets. It does not necessarily follow that our domestic energy suppliers are bound to profit from these circumstances or that their profits will have increased automatically. We are led to believe that their profits have increased; this is true for the US but the figures to prove that it is true for UK companies operating on the UK continental shelf are not yet available. We know that, in 2021, their total profits across supply and generation fell by £133 million, or 3.4%, on the previous year. However, profits increased in the domestic supply market, providing an average profit margin of 4.3%, I believe.
The truth is that the UK’s oil and gas revenues are now a fraction of what they were in the peak period in the mid-1980s, when North Sea oil and gas were plentiful. The supplies are virtually exhausted now, which means that only a small proportion of what we consume comes from domestic sources. Therefore, one should not expect the levies on windfall profits to generate a large amount of additional revenue. The aspersion that the companies have been adding a substantial mark-up in selling what they have been purchasing on international markets is not substantiated. Companies operating in the North Sea are subject to a 30% corporation tax levied on their profits and a supplementary charge levied at the rate of 10%, whereas the standard rate of corporation tax is currently 19%. The energy profits levy, which will take effect retrospectively from 16 May—which is when we were notified of this legislation—will represent a 25% tax on oil and gas profits, bringing the total tax burden on profits to 65%.
In the financial year from 2021, the total receipts from profits on oil and gas from companies operating in the North Sea were £3.1 billion. The Treasury estimated that the additional revenue from the oil and gas levies will be £5 billion in the first 12 months—a highly speculative figure, which may represent an exaggeration. Moreover, as we have heard, the additional revenues are not expected to persist, and the legislation includes a sunset clause that will remove the levy after 31 December 2025, when it is expected that the profits will have declined.
The proposal to impose the levies has been met with the criticism that they are bound to deter investment by energy providers. The Government have met these criticisms by providing some very substantial investment allowances. A new 80% investment allowance will be available to companies in respect of qualifying expenditures. Such expenditures are closely circumscribed to prevent the allowance being used in financial acquisitions, for example, or covering decommissioning costs. It appears that the Government envisage further investment in oil and gas extraction.
However, the allowance will not be available for investment in alternative sources of energy, and here lies the main criticism of the legislation. To encourage investment in fossil fuels flies in the face of the commitments to staunch emissions of carbon dioxide. One can be fearful that these provisions represent the beginning of an attempt to roll back the measures to attain net-zero emissions, to which the Government are seemingly committed.
In any case, one must question the rationale behind investments in oil and gas. Given that the prices of oil and gas are determined in the international markets, and that domestic UK production is now a negligible fraction of global production, there can be no expectation that expanded domestic production could impact significantly on prices.
An economic rationale for an expanded domestic production might be to alleviate the impact on our balance of payments of the cost of our energy imports. Given the magnitude of our balance of payments deficit on the current account in respect of goods and materials, this alleviation would be small in proportional terms.
The truth of the matter is that the UK has failed to take the appropriate steps over the past decade to secure its supplies of energy. Now is a time for urgent action to embark on a viable long-term strategy for the provision of energy. Instead, the current exigencies are encouraging the Conservative Government to attempt to suck from the North Sea what little energy there remains under the waves, and to encourage further attempts at deriving oil and gas by a process of fracturing rocks, which has already been strongly resisted by the citizens of the UK.
Baroness Kramer (LD)
My Lords, there is just one question that I would like to ask the Minister before I begin. There has been some rumour in the press that this legislation would be passed but not implemented because of the change in the leadership. I hope that is a misreading of comments that have been made, and perhaps it applies to a potential tax on the energy generators rather than on the oil and gas companies involved. I thought that this might be an opportunity for the Minister to clarify the issue.
My party called for a windfall tax on the surging profits flowing to the oil and gas companies because of soaring prices back on 24 October 2021, well before Labour made up its mind to support such a tax and seven months before the Government suddenly effected their U-turn. Because the profit surge was well under way last October, we are calling for the levy to be backdated to that date in October. I know that we have no possibility of amending this legislation, but I hope that this might cause the Minister to think again. Had the levy been put in place back then, many families would have had significant help with their struggles over the winter.
The Liberal Democrats would also have structured the levy differently, to ensure that the 25% surcharge applied to the excess global profits of oil and gas producers headquartered in the UK, rather than just profits from their domestic activity. Those two changes combined would have yielded the Government some £11 billion, rather than their expected £5 billion. It is a real missed opportunity at a time when ordinary people need so much help. For those who doubt that there are excess profits flowing to oil and gas companies, I suggest that they need only look at the share buybacks announced by the major oil and gas players—more than $8 billion a year announced in share buybacks by Shell, and something like $6 billion announced by BP, with both companies hoping that their shareholders will permit even larger share buybacks.
The Government have also missed the opportunity to use this levy to promote green investment. The super-deduction of 80% in effect doubles the tax relief for oil and gas companies increasing investment in oil and gas extraction in the UK. For every £1 invested, they get a tax savings of 91p. I accept that gas has a role to play in the transition to net zero, but it is a temporary role as we switch to green hydrogen. I also accept that the Russian war in Ukraine has raised issues of energy security, so that some extension of the life of existing UK oil and gas fields may be required. But we have no practical plan from the Government to get to net zero or to deal with the issues of energy supply while dealing with affordability. All we have is a vague strategy which is leaving consumers, businesses and investors in a state of confusion and uncertainty. In that situation of overarching uncertainty for any kind of investment, this reward for oil and gas extraction risks tilting investment back towards fossil fuels and away from green energy. It really is shambolic. At the very least, investment in renewables should have qualified for the super-deduction. I would argue that, given the need we have to immediately tackle soaring energy bills, investment in energy efficiency and retrofitting homes and commercial properties—the quickest way to bring down bills—should have been included.
None of us knows who will lead the Government in the autumn, and none of us knows how the money raised from this levy will be spent, but at least we can get some recognition today that it ought to be on those who are suffering the most from soaring energy bills and the cost of living crisis. I hope that we can hear that reassurance from the Minister.
Lord Moynihan (Con)
My Lords, I hope that the rumour to which the noble Baroness, Lady Kramer, refers is correct. I will argue the case as to why this should not be implemented if passed by both Houses.
We all support energy transition, and we are all committed to working towards net zero. The fundamental questions are these. What is the appropriate timeline and what is the policy framework we should be pursuing? The answer on policy underpinning has been unchanged since we first developed oil and gas reserves in the North Sea. Security of supply is best delivered through diversity of supply. At the present time, we vitally need to produce gas within a regime of strict environmental standards—gas coupled to policies to promote energy efficiency, as the noble Baroness said, supporting the vital issue of creating effective baseload energy while intermittent renewables and a new generation of nuclear plants are developed. That must underpin energy policy in the UK.
After 20 years and nearly $5 trillion of investment, the world has only 15 million barrels of oil equivalent of wind and solar, against the 237 million barrels of oil equivalent per day which we require. So it will take many decades more to complete the transition. In the meantime, we must encourage investment in gas production in the UK, while insisting on rigorous environmental controls surrounding its production. To have the capacity to invest, the industry must be profitable and be fiscally encouraged to invest its profits in future production.
The noble Viscount, Lord Hanworth, is correct that oil and gas companies operate in a highly competitive global market for the marginal investment dollar. Political uncertainty and populist short-term fiscal measures turn those investment dollars away to more stable provinces. Rather than a short-term measure—despite the good words of my noble friend the Minister regarding the sunset clause—there is no political chance whatever that this levy will not be in place until at least 31 December 2025, which is currently shoehorned into the Bill as a sunset clause. There is no conceivable way that an outgoing Government, in the run-up to a general election, will phase it out, whatever the price of gas, nor a new Government court political unpopularity by taking immediate action.
So what has the EPL done? By announcing the energy profits levy on UK oil and gas production, it almost halved the post-tax profits of the industry by increasing the marginal tax rate from 40% to 65% effective immediately, which Lambert Energy Advisory estimates could cost companies up to $30 billion in taxes over the next three and a half years, to the end of 2025. This was despite repeated protestations over the last three months from the Prime Minister that
“The disadvantage with those sorts of taxes is that they deter investment in the very things that they need to be investing in ... I don’t think they’re the right way forward”,
and the Business and Energy Minister, Kwasi Kwarteng, saying:
“I don’t believe in windfall taxes because what you’re taxing is investment in jobs, wealth creation, and investment”.
As Philip Lambert, who has been one of the leading advisers to successive Governments around the world, has rightly summarised through the publications of Lambert Energy Advisory:
“In the end these reservations counted for little when faced with the political pressure from opposition political parties and the general public to be seen to do something about the current energy and cost of living crisis, even though the action taken will make matters worse.”
Again, as the noble Viscount, Lord Hanworth, pointed out, this is not hypothecated. At its core, the issue is that there has been systematic underinvestment over the last decade in the primary lifeblood of the global energy, gas, leading to a squeeze on supply versus ever-rising demand, combined with an inability of policymakers to recognise or act on this fact. The Russian invasion of Ukraine has recently magnified this crisis but did not create it, and in fact made it harder for policymakers to focus on the root problem.
The only solution to high prices and energy insecurity is more investment to create new supplies from a diverse range of sources. Oil and gas still account for more than 10 times the global energy supplied by wind and solar, and without continuous investment this will immediately start depleting rapidly. Even with the intermittent wind and solar industries continuing to grow at the current exponential rates, it would still take about two decades for wind and solar annual generation additions to match current oil and gas annual depletion with zero investment, let alone start meeting growing global demand for energy. Furthermore, the current rate of wind and solar growth may slow, given the rising costs of import materials and supply chain bottlenecks. Therefore, an increase in oil and gas investment is essential to meet the world’s energy needs and alleviate the current energy cost crisis even as other low-carbon initiatives are welcome and progressed.
While the UK continental shelf is a modest contributor to the global energy mix, accounting for about 1% of both the world’s oil and gas production, and UK energy prices are as much dependent on the USA’s energy system as they are on the UK North Sea, it is still a bellwether for the state of the wider industry and matters at the margin. Hence, the EPL is important both as a signal of wider trends and for its impact matters in its own right. In that regard, despite the UK Government’s rhetoric couching it as an incentive for investment, make no mistake that the EPL is bad for investment in the UKCS. It confirms the UK’s existing reputation for fiscal instability and political opportunism with regards to oil and gas, having already drastically changed the UKCS tax regime rates multiple times in just the last decade. Its policymakers are introducing an additional layer of tax which will come on top of the natural windfall that the sector would pay anyway due to high prices. The EPL is designed to disallow offsetting of historic tax losses only two years after the industry endured severe losses from the crash in commodity prices in 2020 from the Covid crisis, when the UK Government provided the industry with no tax support.
I am sure that the noble Baroness, Lady Bennett, will argue strongly against what I have just said, but this contrasts with Norway, a country I am sure she praises—she shakes her head, but it does at least claim to take a very strong line on environmental policies and in that context, I think it is worthy of comparison. Across the median line, the basic marginal tax rate and principles that have underpinned its approach to investment have remained unchanged for the last two decades. Recent structural changes were carefully signalled in advance and designed to allow a smooth transition, and its Parliament did not hesitate to support the sector in 2020, unlike here. They were confident that the support would be paid back in the long term through greater profitability from a healthy industry. They invested some $10 billion of support. Consequently, despite much higher marginal tax rates than in the UK, Norway retains greater investor confidence than the UK and is already attracting heavy investment in new production with a much healthier independent E&P sector, which is really relevant to gas production in the North Sea. Whatever the details of the law which we are considering today, the mere fact of the EPL’s introduction will certainly impair foreign direct investment in the UKCS because of its reputational impact. It was already very difficult to attract long-term investment into the UK oil and gas industry at a time when three out of the four major party leaders in our county have either called for, or signalled they are open to, an end to new oil and gas investment.
The oil and gas sector globally, but especially in the North Sea, has limited access to new incremental equity and debt capital. Indeed, it is a net repayer of equity and debt capital, so almost all its capital expenditure is funded out of operating cashflows. Hence, the UK Government removing $30 billion from the capital pool in the next few years via the EPL will impair the sector’s ability to spend and to pay out to equity investors, especially for those who are leveraged and still have to meet their debt obligations. There will likely be reluctance, even among those who have the choice, to divert cashflows from other geographies to the UK to make up for this. While the construction of the EPL is in theory designed to encourage more investment, it is questionable whether it will do so even for those who are already committed to the UKCS.
Regrettably, I stand to say this is a bad tax at the wrong time. It will have a negative impact on investment at a critical juncture in our early steps towards a net-zero economy and it should be scrapped.
Lord Sikka (Lab)
My Lords, it is good to see the Minister advancing and defending a policy that the Government so vehemently rejected not so long ago. The Bill is not what it seems to be. A large chunk of the £5 billion that may be raised is to be handed back to the oil and gas companies through the 80% investment allowance. The Explanatory Notes do not say how much that would be; there is no information. Neither is there any requirement that the gas and oil produced with that investment should be used in the UK—after all, we are short of energy. Companies can claim the investment allowance on assets that they do not legally own. In other words, they can claim it on leased assets. I can tell noble Lords, having worked in the oil industry as an accountant, that accountants would be very busy concocting transactions so they can claim this £91 in every £100 for the allowance.
The Government’s treatment of renewables is absolutely lamentable. At the moment, for every £100 of investment, renewables receive £25 in various reliefs. In 2023, that goes down to £4.50. Of course, if the Government think that this 80% investment allowance is so good that it will stimulate additional investment, why not extend it to all the other sectors too and see whether it achieves that? Of course, it will not.
The Government are handing billions to the oil industry. The real reason for that is that it has given vast donations to the Conservative Party: some £1.5 million since 2019, and this is its pay-off.
The 25% levy, or the windfall tax, is actually low. The companies are collecting extraordinary profits without making extraordinary effort or taking additional risks. In my writing, long before the Government or any other political party came around to it, I called for a 90% windfall tax—Greenpeace talked about 70%—which would have generated a lot of money for insulating homes and putting solar panels on every single public building. The 25% windfall tax is simply a gesture by the Government to manage public opinion. It will not really have much impact on oil and gas companies, which have highly diversified income streams. Only about 5% of BP’s consolidated production is based in the UK. The 25% levy will account for less than 2% of its earnings before interest, taxes, depreciation and amortization—in accounting circles, the acronym for that is EBITDA, in case anybody is wondering about that particular expression. This small 2% charge will hardly worry any major oil producer, especially BP. In the first quarter it had profits of $6.2 billion, and it handed over $4 billion to shareholders in the last 12 months. BP reported an average refinery profit margin of $18.90 per barrel during the first quarter of 2022. That is nearly three times the $6.70 per barrel margin reported in 2020. This windfall tax will hardly make a dent in that kind of profiteering. BP has now paid tax on North Sea operations for the first time in the last six years because the Government have showered that industry with all kinds of relief, and that is the result. It has now paid $127 million in tax on profits of $12.8 billion. It will hardly be affected by this levy that the Government are telling us about.
Only about 3% of the consolidated production of Shell is in the UK. Its share of the windfall tax, in terms of impact on EBITDA, is barely 1.5%—hardly worth worrying about. The Government are just making a gesture. Shell tripled its profits to $9.1 billion in the first quarter of 2022 and has just completed an $8.5 billion share buyback programme. It is awash with cash; its refining profit margin rose in the second quarter of this year to $28 per barrel, from $10.23 a barrel in the first quarter and $4.17 a year earlier. That is seven times more profit from refining, and the Government are hardly making any dent in it. Shell has paid no corporation tax on its oil and gas production in the North Sea for the fourth consecutive year.
In the broader context, the yield from the windfall tax is too low, and a vast amount of it is being handed back to the same industry. No questions are being asked about how these oil and gas companies have managed to dodge taxes. There is no investigation into the transfer pricing and profit-shifting techniques used by these companies to dodge UK taxes or any review of the government policies permitting them. In 2019, the UK collected $1.72 in tax per oil barrel; in contrast, Norway collected $21.35 per barrel. Yet the UK Government are mounting no investigation into why they are giving away vast revenues.
Oil and gas companies are also rigging the market. They not only produce but buy, sell and speculate on gas and oil that they have produced themselves. BP alone employs more than 3,000 traders to do exactly that; this speculation has generated $2.3 billion of profit. There is absolutely no transparency about it or any disclosure of the accounts. No accounting standard or government department demands it, so these companies are buying and selling products which they produce, speculating and pushing up the price. That should really be looked at.
There is profiteering at all stages of the entire circuit of producing and selling oil, gas, petrol and electricity, but no windfall tax on all stages. Between June 2021 and June 2022, the refiners’ margins on petrol increased by 366% and margins on diesel increased by 648%. Why is there no windfall tax on the refiners?
On 8 July, the Competition and Markets Authority said:
“Increase in ‘refining spread’ added 24p a litre to fuel over the last year”
and:
“The ‘refining spread’ tripled in the last year, growing from 10p to nearly 35p per litre.”
That is a massive amount of profiteering, yet there are absolutely no checks on it. The RAC and other motoring organisations tell us that major retailers are incredibly slow to pass on falling wholesale costs, yet very quick to pass on rising ones. Again, the Government have done nothing about this, thinking that these organisations will somehow regulate themselves. They have got used to picking our pockets and are carrying on doing so, with the Government’s help. There is profiteering by banks, supermarkets, electricity generators, water and other companies; why are there no windfall taxes on them but a tax on oil and gas companies operating from the North Sea? I hope the Minister can answer these questions.
The Minister will also have noticed that Spain is now levying a windfall tax on banks and utilities to provide free train travel to help people and alleviate pressure on energy demand and petrol prices. Why do the Government not do the same?
Baroness Bennett of Manor Castle (GP)
My Lords, it is a great pleasure to follow the very powerful speech of the noble Lord, Lord Sikka. I apologise to the Minister for missing the first few seconds of her speech; we had a very long group in Grand Committee on the Procurement Bill.
I must commend the noble Lord, Lord Moynihan, on bravely—in the “Yes Minister” sense—highlighting the importance of stability in government policy, using the example of Norway, which is known for such stability in its policy-making. It has a modern, functional constitution and a Parliament that reflects the view of the people, elected by proportional representation, producing what is generally agreed to be a fine quality of governance. I point out that, whatever the final belated delivery of this very modest—as the noble Lord, Lord Sikka, just highlighted—tax on the oil and gas industry, the renewables sector has seen instability in policy. The sudden pulling out of the rug on the feed-in tariff saw many small, independent businesses—solar installers and small-scale hydro—see their businesses disappear overnight because of government policies and the installation sector was encouraged to build up several times by government policies before having the rug pulled out from under it. So I commend the noble Lord, Lord Moynihan, on being terribly brave in criticising his own Government.
Now we find ourselves in the strange situation that a Government on their way out are finally seeking to tax oil and gas companies that have made huge profits, as the noble Lord, Lord Sikka, just outlined—not through innovation, positive activity or investment, but because of a perturbation in the global energy markets and, as the noble Baroness, Lady Kramer, highlighted, President Putin’s invasion of Ukraine. These are profits made on damaging products that impose heavy costs on us all. We have been experiencing those costs today: of course today’s temperature is just weather, but we are seeing a great deal of notable, extraordinary weather on this overheated planet, for which the oil and gas sectors bear the greatest responsibility.
This tax applies only from 26 May, which means the bumper profits enjoyed by companies such as BP and Shell in the first quarter of 2022 are not covered. The Government say that this is a temporary tax; it was brought in belatedly, long after the Green Party, and then others, called for its introduction. They say it will be dropped when prices “normalise”, whatever that means, or, by the terms of the Bill, on 31 December 2025 at the latest.
Of course, it could also be by government fiat. I would be interested to know if the Minister can tell me the position of the field of Conservative leadership candidates on this dirty profits tax. I had not heard the rumours that the noble Baroness, Lady Kramer, has, but I have not heard any affirmative statements either. Do they intend to maintain the Government’s current policy? We have heard very little about any environmental issues in the leadership debate—astonishingly, given that our nation remains the chair of COP and in the recent integrated defence review identified the climate emergency as a major threat.
The i reported, and I have no reason to disbelieve, that not a single Conservative leadership candidate attended the emergency briefing led by the UK’s Chief Scientific Adviser Sir Patrick Vallance, which outlined the catastrophic impacts of a warmer planet—an updated version of the one that converted Boris Johnson, at least rhetorically, to the cause in 2020. I am sure the party is aware of the fate of the climate change-denying Government of Scott Morrison in Australia—which has so many similarities to our current one—and must be concerned about how the public will see the huge black hole at the centre of the Conservative leadership debate.
With this tax, as with so many of the Government’s so-called green measures, what is on the wrapper does not reflect what is in the tin. There is nothing extraordinary about the tax rate being temporarily introduced; it simply reflects, as the Institute for Fiscal Studies notes, a return to levels
“broadly typical of the historical rates of North Sea taxation since the 1970s”.
Perhaps that is some of the stability the noble Lord, Lord Moynihan, was looking for. That is without counting the super-deduction so many noble Lords have already covered, which means that investing £100 in the North Sea for new production will cost companies only about £8.75. The remaining cost is met by the Government. That is the money of so many hard-pressed citizens, struggling with the cost of living crisis, going into new oil and gas. Dan Neidle of Tax Policy Associates, commenting on this, said that applying this for three years simply did not square with long-term investment planning. He says,
“Short term allowances don't incentivise investment, they just give money away.”
That is that £91 being given away by the Government to the oil companies.
Many commentators have noted that investments can take decades to produce results, and indeed are expected to. That immediately demolishes any claim about this gas being simply a bridging fuel towards renewables. Instead, what that public money would be doing is adding to the carbon bubble, and I note the latest figures from the respected analytical group Carbon Tracker, which show that global stock markets are currently financing companies sitting on three times more coal, oil and gas reserves than can be burned without beating the 1.5 degree Paris climate target. In its latest report, it also revealed that the embedded emissions in the fossil-fuel reserves of companies listed on the global stock exchange has grown by nearly 40% in the last decade, despite the growing urgency of the climate risk.
Given that a third or more of the money raised goes straight back to oil and gas producers, that suggests that it is the largest companies, the giant multinational companies that can most afford to pay, which are most likely to profit from this provision, while smaller firms may not be in a position to do so.
I am sure I can predict with some degree of certainty, since these issues have been much canvassed, what the Government are likely to say in response—“energy security”—and they will probably know what I am going to say, at least in a general context. I think it is worth highlighting that we are part of a global energy market. This is not gas that is going to go into our market; it is gas that goes into the global market. I have seen in one or two places the Government trying to say, “Well, you know, supply and demand—more supply means the price goes down.” According to 2017 figures, the UK has 0.106% of the world’s natural gas reserves, so the claim that this will make any difference to the global price does not add up. Coming back to the point raised by the noble Lord, Lord Moynihan, there is also the fact that we get we get most of our external gas from Norway and that has a carbon footprint significantly lower than that in the UK.
I come back to the points raised by the noble Lord, Lord Sikka, about the economic context. I think one useful way of framing this is by a recent report the Common Wealth think tank, which noted that workers in the UK would be paid £2,100 a year more on average if wages had grown in the same way as company dividends in the past two decades, in our rentier-dominated economy. The Common Wealth think tank joined in a May Day statement with other groups—including the Women’s Budget Group, reflecting the gendered nature of inequality in the UK—that pointed out that this current cost of living crisis, which is often dated to the start of the Russian invasion of Ukraine, is a long-term trend. The economy has been arranged for the benefit of the few, at the cost of the many—not coincidentally in a political system that is funded largely by the same few. We get the politics they pay for.
I cannot but conclude that this belated, limited, inadequate gesture reflects the political place of the oil and gas companies in our current political system. It is deeply disappointing that the renewables sector is not getting similar incentives—I will not go into detail as the noble Lord, Lord Sikka has already covered this very well.
I come finally to one point about how much the failure to head towards renewables is costing people in this cost of living crisis. We have seen recently the new contracts for difference let, and that is expected to cover about 12 gigawatts of power for the coming year. Had that been done 12 months ago, it would have saved average household energy bills about £100 a year. That is what delays a costing moment by moment, day by day. The renewables sector had ready, and was prepared to go ahead with, 17.4 gigawatts of energy, but the Government did not offer all the contracts that could have been offered. That is going to cost consumers on their bills every day.
This is a belated, inadequate measure, and every government failure every day—this focus towards oil and gas—is costing people in their bills, as well as costing us the planet. We are not doing the long-term, steady renewables policy that could deliver the future we all need.
Lord Teverson (LD)
My Lords, I congratulate the noble Lord, Lord Sikka, on his forensic analysis of the market. It was quite astounding. He is an accountant, so he has to be right—we know that, in the western world. I thank him for that, and I look forward to the now extended half-an-hour reply from the Minister to his questions.
I have to say that one of the things that I like about the Bill—let us start off with the positive things—is that to some degree it is fiscally responsible. The Government are spending something a mere £37 billion—the Minister will correct me—on trying to solve the crisis in price increases, and here we have a Bill that, while it is not hypothecated, puts some £5 billion estimated back into the Treasury to pay for that. One of the reasons I welcome the Bill is because now, whenever I see a Conservative Party letterhead and that tree that is its logo, I think of it as the magic money tree. That has gone from rhetoric aimed at the Opposition Benches to the Government Benches because of the first round of the Tory leadership competition, where we had absolutely zero fiscal responsibility of any sort whatever. Maybe these are the last vestiges. Maybe the noble Lord, Lord Moynihan, will be rewarded by the fact that, if one of those now remaining eight candidates —or six or whatever it is—get in, this will probably disappear due to low tax and high spend. It will be interesting to see.
My noble friend Lady Kramer is absolutely right. At the end of the day, the core of this is the fact that households are having to pay huge amounts of extra money for their energy, and it is a real challenge to them. I quoted this figure in Grand Committee yesterday in a debate on an SI. Looking at myself, my standing order to Octopus Energy at the beginning of the year was £212 a month; this month, I paid £355. That is a huge increase, and one which I am fortunate enough to be able to afford—although even I blinked. However, to many of the households in this country, not least the 3.5 million households that were in fuel poverty before these prices even rose at all, it will be a huge challenge.
One of the sad things about that £37 billion that is going into trying to solve this crisis in the short term is that it is money just to stand still. There is no investment in there in energy efficiency or putting our housing stock right—all those challenges that we need to meet. It is just money that is coming through the Treasury and, importantly, out to households again. However, if these high energy prices continue, that will not have solved that problem one little bit.
When the noble Baroness, Lady Bennett, mentioned Scott Morrison, it was like a voice from the past. I thought I had forgotten that name forever, and I wish that I had. I hope that Anthony Albanese, who has now taken over, will now very much change the southern hemisphere’s look at climate change.
I come back to Norway, which seems to have dominated this debate to a degree. The great thing about Norway, of course, is that it has a sovereign wealth fund, one of the largest in the globe, which is invested internationally and well, and is a great asset, whereas we in the United Kingdom have no sovereign wealth fund whatever, despite having depleted those resources in the North Sea. I am not pointing the finger at anybody or at any particular party, but one of the tragedies is that we have not used that ability to invest in our future.
No doubt this is a tilt back to the carbon economy rather than the clean economy—one of energy efficiency led by renewables. I would like to ask the Minister a question. I read through what was allowed or not for investment—the noble Baroness will excuse me if I did not read it sufficiently well—and I wanted to understand whether investment in new fields in the North Sea was allowed. Would it include that, depending on how long this levy lasts for, or is it just around—I say “just” carefully—greater extraction from existing resources?
I would also like to ask the same question that the noble Lord, Lord Sikka, did. Although I understand that this £5 billion is a net figure after the investment incentive, I would be very interested indeed to understand whether that is the case or what the Government are forecasting with regard to the take-up of that investment.
On a minor point—I do not want to take the House’s time up on it hugely—it seemed to me when I read through the Bill that it took up a huge amount of space to make sure that nothing recycled was used. I can sort of understand all that, but it does not say a lot about the circular economy to a degree. I would hugely prefer recycling rather than new equipment, but maybe that is a small thing.
This industry is moving towards carbon capture and storage, which is perhaps more beneficial—I am slightly sceptical about CCS, but the Climate Change Committee tells us that it is a key part of meeting net zero. Is investment in carbon capture and storage included in this?
Contracts for difference were mentioned by someone—was it the noble Lord, Lord Moynihan? Sorry, it was the noble Baroness, Lady Bennett. Sorry I mixed the two up—their views and speeches are so similar. Where we have contracts for difference, this problem of excess profits is solved. The Treasury, through the contracts company, is doing very well at the moment, because the strike price on contracts for difference is well below the current wholesale or reference price for electricity. If we have those sorts of mechanisms—introduced by a Liberal Democrat Secretary of State for Energy and Climate Change—we solve these things automatically. I think there are ideas to apply that to the traditional power sector as well, which would indeed be interesting.
As my noble friend said, we see ourselves—no doubt, along with others in the House—as progenitors of this legislation, to which the Government were very late to the table, but we are at the crossroads, a fork, in energy policy. There are the siren sounds of, “Hang on a minute. Let’s take the route back to fossil fuels to put this right. Guys, it’s only temporary; we’ll invest in new fields, but we will still be in transition.” There is a real danger here. We have seen that in the leadership contest for the government party at the other end of the Corridor, during which this issue has not been seen as sufficiently important by candidates and their campaigns. We really are at a fork.
Lastly, I put a challenge to the Minister. Just to make sure I am wrong, can she confirm that the Government will not approve the coal mine in Cumbria?
Lord Tunnicliffe (Lab)
My Lords, I am grateful to the noble Baroness, Lady Penn, for introducing this important Bill. It is legislation that we could and should have debated many months ago, had the then Chancellor, the current Chancellor and the rest of the Cabinet not railed against Labour’s longstanding proposal for a windfall tax on oil and gas profits.
The Labour Front Bench facilitated three votes on this issue in another place, with Conservative MPs voting against the proposal on each occasion. Ministers told us that a windfall tax would be unfair. It is not. The revenue raised will fund vital support for households across the country in the face of spiralling bills. They told us that the energy companies were against it. They were not. Energy bosses were clear that their increased profits had not been expected and would not be missed. They told us that it would stifle investment. It will not. Firms said that plans were already in place and were unlikely to be scaled back in the face of a higher tax burden. When the inevitable U-turn came on 26 May, with the announcement of the creatively named “temporary, targeted, energy profits levy”, we welcomed it—subject to seeing the detail.
The Bill before us creates the legislative underpinning for the levy. We will not oppose it, but that does not mean we fully endorse the Government’s approach. The levy will be charged only from the date of the policy announcement, rather than being backdated to a point where both wholesale prices and company profits began to rise above what would be considered normal.
The Government’s preference was not to apply a tax measure retrospectively, but can the Minister confirm whether the Treasury has calculated how much could have been derived from a levy between January and May 2022? Can she also confirm that the Treasury commencing the levy at an earlier date was indeed an option? Although it is not a fiscal measure, your Lordships will remember that in March, during consideration of the economic crime Bill, the Government introduced rules relating to entities disposed of prior to the Bill’s introduction. This levy can be phased out if and when prices return to normal; otherwise, the Bill contains a sunset of the end of 2025.
In another place, much debate focused on what the Government mean when they talk of normal prices. The Chief Secretary suggested that the Treasury would be looking for parity with the prices seen in 2019 or 2021, rather than the “artificially” low prices of 2020. Can the Minister confirm exactly what figure the Treasury has in mind as a trigger for phasing out the levy? Do the Government believe there is any realistic prospect of those prices being seen before the 2025 sunset, or is the expectation that inflated energy bills are here to stay, at least into the medium term?
The Treasury’s announcement of a windfall tax came alongside the scrapping of its proposals for a “buy now, pay later” loan to households and the introduction of a £400 discount instead. It soon emerged that owners of more than one property will be entitled to multiple reductions. That includes the then Chancellor, Mr Sunak, who said he would donate the extra money to charity. He urged other wealthy people to do the same.
Instead of leaving it to individuals’ discretion, why has the Treasury not performed another U-turn and closed that loophole in this Bill? Do Ministers really believe that it is fair for those who can afford multiple properties to receive more support? The cumulative cost of this decision is likely to be in the region of £200 million. Would that money not have been better spent providing further support for the least well off households beyond that already announced? We are, after all, expecting another significant hike in energy bills from October. That is about real people; it will place household budgets under further pressures at exactly the point at which temperatures start dropping and people fire up their heating.
There are several other issues with the detail of these proposals. This calls into question the Government’s line that their delay in adopting this levy was so that they could work through its practical implications. The decision to include investment relief was not an inherently bad judgement. While we believe that the Government has massively overstated the investment implications of a windfall tax, it does make sense to carry out such an assessment. However, the way that the investment-related tax reliefs have been drawn up is problematic. The super-deduction style of relief will see an astonishing 91p returned to oil and gas producers for every pound that they invest. Much of the revenue raised by the levy will therefore go straight back into oil and gas producers’ pockets, rather than serving the stated purpose of helping consumers with their higher energy bills.
Those tax reliefs mean that, from next April, fossil fuel investment will be subsidised in the tax system at a rate of 20 times the investment available for renewable energy schemes. Much of this investment was going to happen anyway. These schemes have been in the pipeline for years and many firms had already scaled up their ambitions when wholesale prices started to rise and profits grew. This means that the investment tax relief is unlikely to produce any meaningful benefit in terms of future energy supply or energy security. There are also fears that funds could be used for exploratory fracking.
Some analysts believe that as much as £4 billion may be lost to subsidised investment that is happening anyway. Again, does the Minister not think that this could be better spent elsewhere? That £4 billion could provide generous further support for consumers, begin reversing the Government’s neglect of energy storage, or boost the UK’s green energy capabilities. Are these not worthy causes? Doubling our onshore wind capacity by 2030 would power an extra 10 million homes. Insulating 19 million homes over the next decade would slash household bills, while drastically improving the quality of the nation’s housing stock. Further investment in offshore wind, solar power, tidal power and hydrogen could improve our energy supply and help in our fight against climate change. These are the Labour Party’s priorities. They should be the Government’s priorities too.
Instead of helping people through the cost of living crisis, the Treasury has designed a windfall tax which hands money back to the oil and gas giants, incentivising further exploitation of fossil fuels. The British public will be grateful for the limited help that they are receiving with their bills, but they will also see through the Government’s claim that they are on their side. It took too long for the Treasury to act, and there is still much work to be done in the UK if it is to weather this cost of living storm.
Baroness Penn (Con)
I thank all noble Lords for their contributions to this debate. In closing, I will focus on responding as far as possible to the many and varied points raised.
As I said at the beginning, the global context of high oil and gas prices has driven extraordinary profits for UK oil and gas producers. It is both fiscally prudent and morally right therefore that, through the Bill, we introduce a temporary and targeted levy on these extraordinary profits, which will help fund more cost of living support. At the same time, companies must have ample incentives to continue to invest and the Bill has been tailor-made to account for this. The new 80% investment allowance will provide them with an additional, immediate incentive to invest. This means that, overall, businesses will get a 91p tax saving for every £1 invested.
Turning to the points raised in today’s debate, the noble Lord, Lord Tunnicliffe, asked about revenue that could have been raised had the levy been in place between January and May this year, and the noble Baronesses, Lady Kramer and Lady Bennett, made similar points. It is not standard for the Government to publish assessments of the fiscal and economic impacts of measures that are not being introduced and it is not clear that doing so in this case would be a beneficial use of public resources. I would also add that since the beginning of the year, three significant things have changed. The situation in Ukraine altered considerably, inflation is considerably higher than previously expected and the Government had concrete information on the indicative levels of the autumn and winter energy price cap, allowing us to design the levy and the related cost of living support to meet the scale of the challenge we faced.
As for whether an earlier commencement date for the levy was an option, as noble Lords would no doubt expect, the Government carefully considered several options. Indeed, following thought and with time to consider, the levy has a more appropriate tax base. The result is that it is not depressed by historical losses and has an investment incentive that is not only more generous but more effectively targeted at new investment. The Government are also very careful when it comes to the retrospective application of taxes. Although this tax will apply from 26 May—the date it was announced—there needs to be careful consideration whenever the question of retrospection is raised, particularly in relation to tax.
The noble Lord, Lord Tunnicliffe, also asked about the Government’s plan to phase out the energy profits levy if oil and gas prices return in future years to historically more normal levels. As the former Chancellor told the Treasury Select Committee, the Government are discussing that with industry. The former Chancellor also mentioned the Brent crude price over the last five or 10 years, which is along the lines of $60 or $70 a barrel. Similarly, companies have communicated to their shareholders what they would consider normal oil prices; they tend to use numbers in the range of $60 or $70, so that gives a sense. The situation is complicated because prices have changed at different rates, with gas, for example, reaching a peak in March. However, as the noble Lord mentioned and other noble Lords noted, there is a sunset clause of just over three years in the legislation as a backstop. If prices come back to the range that the former Chancellor discussed, one might expect the levy to fall away sooner.
The noble Lord, Lord Tunnicliffe, also mentioned that fossil fuel investment will be subsidised in the tax system at a rate of 20 times the incentives available to renewable energy schemes. Other noble Lords expressed concern around the investment incentives in the Bill and whether these challenge our commitment to net zero. Having an element of independence of oil and gas in our energy system is important, and sourcing gas locally, through the North Sea, makes us less dependent on imports. As set out in the Government’s energy security strategy, the North Sea will still be a foundation of our energy security, so it is right that we continue to encourage investment in oil and gas. Our oil and gas have lower emissions intensity compared to imported liquid natural gas.
As I noted in my opening speech, in meeting our net-zero target by 2050 we might still use a quarter of the gas that we use now, so to reduce our reliance on imported fossil fuels we must fully utilise our great North Sea reserve. However, that does not in any way contradict our commitment to our net-zero targets. I take issue with the noble Baroness, Lady Bennett, claiming that this Government are in any way climate change denying. The UK has decarbonised its economy further and faster than any other G7—
Baroness Bennett of Manor Castle (GP)
Just to clarify, I was referring to the Scott Morrison Government of Australia when I said “climate change denying”.
Baroness Penn (Con)
I believe she was comparing that Government to this one. This Government have legislated for our net-zero targets—the first major country to do so. We have decarbonised further and faster than our G7 counterparts, and we have shown global leadership on climate change and wider nature and biodiversity through our chair of the G7 and COP 26. I know that noble Lords will continue to push the Government to do better, go further and do more. That is absolutely right and appropriate. The noble Baroness believes in effective campaigning; I am not sure that an effective way to campaign is not to recognise some of the progress made on the journey.
The noble Lord, Lord Tunnicliffe, said that investment will be subsidised in the tax system at a rate of 20 times the incentives available to renewable energy schemes. We do not recognise these figures. Oil and gas companies within the ring-fence regime are already paying tax on their profits at more than three times the rate of other companies, so any tax relief is reducing a higher tax bill. Although oil and gas companies save an additional 45p in tax for every £1 they invest—91p in total from the levy—they will pay tax at 65% of remaining profits. In contrast, outside the oil and gas ring-fence regime, profits on companies such as those in the renewables sector are taxed at 19%. So if a company made £100 in profit it would pay £65 in tax in the oil and gas regime but only £19 if it were outside the regime. If it then reinvested £25 of that profit, an oil and gas company would still pay more than twice the tax of a normal company—just over £42 compared with just under £13 for a company outside the regime.
The noble Lords, Lord Sikka and Lord Teverson, expressed concern that a large proportion of the estimated £5 billion of revenue raised in the first 12 months of the levy being in place would be lost to the investment allowance. I reassure noble Lords that the £5 billion estimate is net of the effect of the investment allowance.
Lord Sikka (Lab)
Will the noble Baroness tell us the cost of giving this 80% investment allowance? She said that the £5 billion is net; what would it have been without that, so that we know what the cost is?
Baroness Penn (Con)
I will come on to that in just a minute. Relatedly, I was just about to answer the question about whether the money going into the tax relief might be dead weight, in that the investment would have happened anyway. The Government expect the combination of the levy and the investment allowance to lead to an overall increase in investment.
In relation to the noble Lord’s question, the OBR will take account of this policy in its next forecast. I think we will see some more detail from its assessment then. I hope that the net additional investment that we expect from the design of the levy provides some reassurance to my noble friend Lord Moynihan.
The legislation also includes an anti-avoidance provision to prevent any recycling of existing assets getting the allowance. I think that is about the targeting of the allowance and avoiding dead-weight costs, rather than not being supportive of the general concept of recycling assets.
Lord Sikka (Lab)
I appreciate the point the noble Baroness made about recycling, but there is nothing whatever in the Bill to prevent an oil and gas company leasing a used asset, saying that it is a new investment and claiming this allowance. That asset need not even be owned by a company in the UK—the lessor could be somewhere else in an offshore tax haven. It could be an affiliate of the same company that pays, acquires a right and then uses it. The Bill does not prevent that, does it?
Baroness Penn (Con)
My Lords, the investment allowance has been carefully designed to ensure that it incentivises investment but does not provide relief for investment that would have taken place otherwise.
I will pick up on a couple of further points from the noble Lord, Lord Teverson, who had a few questions. To clarify, the allowance does apply to new as well as existing fields. It will not apply to carbon capture, usage and storage, as it applies only to upstream activities, and carbon capture, usage and storage is not an upstream activity. However, it would apply to the decarbonisation of those upstream activities. I hope that makes sense.
On energy storage, the Government published an energy security strategy in April to increase domestic energy production and accelerate the move away from gas towards low-carbon energies such as nuclear, renewables and hydrogen. It builds on delivery over the past decade, including giving the go-ahead to the first nuclear power plant in a generation and a fivefold increase in renewables. The Government will ensure a more flexible, efficient system for both generators and users by encouraging all forms of flexibility, with sufficient large-scale, long-duration electricity storage, to balance the overall system by developing an appropriate policy to enable investment by 2024.
The noble Lord, Lord Tunnicliffe, asked about the £400 energy discount and whether that may apply to second homes. The Government’s intention is for the Energy Bills Support Scheme to reach as many households as possible from October, while minimising the administrative complexity of the scheme. We consulted on the basis of delivering the £400 via domestic electricity meter points. While he is right that some households have second homes or multiple meter points, it will be important to balance this against the timely and efficient delivery of the scheme. I know noble Lords have expressed concern about the targeting of the support that the Government will provide. I just say that, in contrast to calls from other Benches—for example, around a different route, which could be to reduce VAT—the flat-rate payment provides a better targeted level of support to those households that are most vulnerable. I think that is something that we should support.
The noble Baroness, Lady Kramer, asked for reassurance that the proceeds of the levy will go towards support with the rising costs of living. As her noble friend said, the support announced this year is worth £37 billion. Our estimate for the first year of the levy is around £5 billion. While there is not a direct ring-fence, it was announced at the same time as the additional measures in May, which were about £12 billion of that £37 billion. The extra support that the Government are giving people actually outweighs the revenue being raised from this levy. The distributional analysis published alongside the May package shows that it was highly progressive, and around three-quarters of total support will go to vulnerable households. As noble Lords will also know, we made it clear at that point that next April’s uprating of benefits will use the normal September CPI—as we expect that level of inflation to be higher than it will be the following April—to account for ongoing high energy costs for those households on the lowest incomes.
The noble Baroness, Lady Kramer, the noble Lords, Lord Tunnicliffe and Lord Teverson, and others asked about energy efficiency. I talked about the £37 billion of cost of living support, and I reassure noble Lords that the Government are spending £6.7 billion in this Parliament to improve energy efficiency and decarbonise heat in buildings. Over the next three years, the Government are investing a further £1.8 billion on low-income household energy efficiency, on top of the £1.2 billion spent since 2020. This will improve around 500,000 homes, saving households on average £270 a year on their energy bills long term, at current energy prices.
Some £471 million has been spent to date on the social housing decarbonisation fund and sustainable warmth programme, estimated to save households an average of £350 to £450 a year on their energy bills. We are also consulting on expanding the energy company obligation to £1 billion per year for improvements to fuel-poor households. The Government agree with noble Lords about the importance of improving energy efficiency, as well as providing immediate support to households with the cost of living.
I cannot answer the question from the noble Lord, Lord Teverson, on the coal mine in Cumbria, or all the questions from the noble Lord, Lord Sikka, but maybe I will write to them both and copy in all noble Lords so that they get satisfaction on those points.
Lord Teverson (LD)
I was slightly mischievous in asking the question, because clearly the Minister will not be able to write and give me the answer, although I would like her to. The Government have clearly put off this decision yet again, and I just think it would be a really good sign if they made up their mind and did the right thing. Perhaps they could make that decision, at least before we have regime change.
Baroness Penn (Con)
My Lords, if the noble Lord is happy to consider that message received, maybe I will direct my letter just to the questions from the noble Lord, Lord Sikka, which I may be able to answer with more success.
I have a final point, which is quite crucial to why we are all here today, in answer to the noble Baroness, Lady Kramer, who asked whether we will implement the levy we are legislating for. I assure all noble Lords that we will. We expect Royal Assent to be quite swift after we finish with the Bill this evening, and the levy will come into effect not just from that point but retrospectively from 26 May.
The noble Baroness noted the separate issue of the electricity generation sector. The Government continue our work to explore whether certain parts of the energy generation sector are receiving extraordinary profits, partly due to record gas prices. We are consulting with that sector both to drive forward the energy market reforms and to evaluate the scale of any potential extraordinary profits, and we are considering the appropriate steps to take. That work is proceeding separately and more slowly, but this levy—once noble Lords have agreed to it this evening—will absolutely go ahead.