Energy (Oil and Gas) Profits Levy Bill

Alan Brown Excerpts

2nd reading
Monday 11th July 2022 Commons Chamber

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Will the Minister give way once more?

[Mr Clarke]

No, I will not; I am going to make some progress.

As set out in the energy security strategy, the North sea will still be a foundation of our energy security for years to come. Currently, about half our demand for gas is met through domestic supplies. In meeting net zero by 2050, we have to be realistic; we will still be using about a quarter of the gas that we use now. It is therefore necessary to incentivise investment in oil and gas, and to encourage companies to reinvest their profits to support the economy, jobs, and our energy and security, but it is possible to tax extraordinary profits fairly and to incentivise investment. That is why, within the energy profits levy, a new “super-deduction” style relief has been introduced to encourage firms to invest in oil and gas extraction in the UK. We expect that the energy profits levy, with its investment allowance, will lead to an overall increase in investment. Indeed, one oil and gas company has already said that the immediate investment allowance should spark further investment in the North sea. The new 80% investment allowance will mean that, overall, businesses will get a 91p tax saving for every £1 they invest, providing them with a clear incentive to do so. This nearly doubles the tax relief available and means that the more investment a firm makes, the less tax it will pay. Unlike Labour’s windfall tax in 1997, this levy both incentivises investment and raises more revenue.

The energy profits levy contains an investment allowance that doubles the overall investment relief for oil and gas companies, unlike Labour’s proposal of a few weeks ago. Our levy raises around £5 billion over the next 12 months against Labour’s estimate of around £2 billion for its proposals. Its windfall tax would raise less than £70 per household, not £600 as it claimed. In fact, the Opposition’s regressive VAT plans would give millionaires in mansions more off their bills than those in need. They are now caveating their windfall tax costings by stating that their £600 per household support will be supported by “other measures”. By that I presume they mean more public spending and a higher rate of taxation for hard-working people across this country. As usual with Labour, the sums sadly do not add up.

The new tax we are introducing today ensures that the extraordinary and unexpected profits from which oil and gas companies have benefited are taxed fairly and provide a significant investment incentive. This is a sensible considered move and one that will be warmly welcomed across the House.

Our plans mean that the oil and gas producers can claim the allowance when their spending on 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, and, as some Members of the House will know, that can take several years.

I want to make it clear what the investment allowance will apply to. First, if capital or operating expenditure qualifies for supplementary charge allowance, it will qualify for the energy profits levy allowance. As the levy is targeted at the extraordinary profits from oil and gas upstream activities—that is the profits that came about owing to 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 the oil and gas production, for example through electrification. Therefore, any capital expenditure on electrification, as long as it relates to specific oil-related activities within the ringfence, will qualify for the allowance.

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[James Murray (Ealing North) (Lab/Co-op)]

I thank the Minister for setting out how North sea oil and gas producers will be affected by the measures the Bill seeks to introduce—even though he seemed unable to say the words “windfall tax” when referring to it at any point during his speech.

This Bill is long overdue. We are finally debating this legislation in Parliament, more than seven months after the shadow Chancellor first set out Labour’s plans for a windfall tax on oil and gas producers’ profits. In the seven months since Labour first called for a windfall tax, cost of living pressures for people have grown relentlessly, and in those seven months, oil producers’ profits have soared.

Since the start of this year, energy bills have spiralled by £700 for a typical household, inflation across the board has hit 9.1%, the highest in 40 years and, despite Tory smoke and mirrors with thresholds, average earners will still be paying £300 more in national insurance contributions by 2027.

[Alan Brown]

The hon. Gentleman is making the point that Labour has campaigned on this for seven months. At the same time, the SNP has been calling for a much wider profits levy to address excess profits of other companies. Why is Labour not looking at that? I will give an example: Tesco chair John Allan, as we know, called for the windfall tax on oil and gas, but Tesco trebled its profits from £636 million to more than £2 billion. Why not an excess profit levy on Tesco and others that have profited through the pandemic?

[James Murray]

I look forward to the hon. Gentleman supporting Labour’s amendments and new clauses to the Bill as we seek to cut some of the loopholes the Government have introduced, which I will turn to in a moment.

Let us not forget that, while cost of living pressures on people across the country have soared relentlessly, oil and gas producers’ profits have climbed too, with some tripling this year. A fair solution has been staring the Government in the face: levy a one-off windfall tax on North sea oil and gas producers’ profits and use that money to help to cut people’s energy bills at home.

Yet when, on 9 January this year, the shadow Chancellor first called on the Government to levy just such a tax, Conservative MPs opposed it outright. Leading that opposition the very next day was the then Education Secretary, the right hon. Member for Stratford-on-Avon (Nadhim Zahawi). He is now of course the Chancellor, so this is his Bill. At the time of our announcement, the now Chancellor, who was an oil industry executive before becoming an MP, came out firmly against the tax on the grounds that oil producers were “already struggling”. When she responds, I would be grateful if the Financial Secretary to the Treasury confirmed whether the Chancellor supports his own legislation today.

Back in January, of course, it was not only the now Chancellor who opposed the tax. The Business Secretary opposed it too, saying:

“I have never been a supporter of windfall taxes.”

The then Northern Ireland Secretary, the right hon. Member for Great Yarmouth (Brandon Lewis), said that he thought a windfall tax sounded attractive, but did not work. The Deputy Prime Minister claimed it would be disastrous. Ministers and their Back-Bench Conservative colleagues then went on to vote against our plan for a windfall tax on three separate occasions.

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[Alan Brown]

It is good that the hon. Gentleman mentioned Tax Justice UK. It is probably worth speaking to it about pandemic profits and a wider profits levy, because that it is what it advocated. Hopefully when he is discussing the oil and gas stuff with it, he will discuss a wider profit levy as well.

[James Murray]

I thank the hon. Gentleman for his intervention. We discuss many matters with Tax Justice UK, not least its response to the ridiculously short consultation period on the draft of the Bill that the Government are now seeking to rush through Parliament in a day.

Despite the fact that Ministers may be in a rush today, we know that their story until recently has been one of delay. Those months of delay in backing a windfall tax mean that the public finances have missed out on billions of pounds of tax revenue that could have gone towards further help for people struggling with the cost of living. But whatever it took to get the Prime Minister and the former Chancellor over the line, we were relieved that they finally agreed to back a windfall tax. On behalf of the people we represent across the country, we were relieved that some help with soaring energy bills was finally on its way. That help is set to include a payment of £400 to all domestic energy bill payers. We welcomed that promise of support announced alongside the windfall tax, and we were relieved that the Government had finally listened to what we and so many others had been saying as they agreed to drop the “buy now, pay later” compulsory loan scheme that had been promised before. But we were dismayed to learn that some of the people who need the help least will be getting that £400 payment several times over. Because this package has been cobbled together at the last minute, people who live in more than one home will get £400 for each of them, so a total of £200 million of public money will go towards people with multiple properties. That is not fair, it is not a good use of public money, and, as we see far too often, it is public money being casually wasted by this Government.

While that particular loophole may have been the result of carelessness or haste, the Bill contains another loophole that has been created by design—a brand-new tax break for oil and gas producers that will give money back to the same firms that were supposed to be paying their fair share through the windfall tax. This tax break means that oil and gas producers will receive an unprecedented level of subsidy for their spending on oil and gas-related activities. For every £100 an oil and gas producer invests in the North sea, they will receive £91.25 from the taxpayer. That compares with £25 that companies receive for investing in renewable energy—a figure that will fall to just £4.50 from April 2023.

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[Abena Oppong-Asare]

As the hon. Member knows, Labour has been consulting regularly with organisations and stakeholders about the matter. We are willing to meet anybody who would like to meet us. Our door is open.

We called for the windfall tax months ago and are glad to see that the Government are taking it forward, but I have to say that they have been all over the place on the issue. In May, it was suggested that the Chancellor had asked the Treasury to draw up plans for a windfall tax on excess profits by electricity generators. I really wish that the Government had been vocal on the issue when Labour raised it months ago. As hon. Members will know, the price of electricity is closely linked to the price of gas; electricity prices have therefore been pushed up, although the costs of generating electricity from renewable sources have not changed. That is leading to significant profits for the sector. It was reported that such a windfall tax could raise up to £10 billion, but the Bill says nothing about the electricity generation sector.

As the Government have gone quiet on wider plans to decouple electricity prices from the price of gas, I would be grateful if the Financial Secretary would shed some light today on the Government’s plans for the electricity generation sector. It is clear that the market needs urgent reform so that it delivers for consumers and businesses. I hope that she can tell us why the Government are delaying bringing forward an energy market reform Bill that will finally break the link between gas and electricity prices.

Hon. Members have mentioned the support announced alongside the windfall tax. Of course it is a relief to our constituents that the Government have finally brought forward payments to help with energy bills and have scrapped their proposed “buy now, pay later” scheme, but we think it simply wrong that owners of multiple properties will receive the £400 payment for each and every property that they own and live in. There are surely far better uses for the money than that, so I urge the Government to think again.

Although we will support it today because we have long argued for a windfall tax on oil and gas producers to help people with soaring energy bills, we know that the Bill will not be enough. It is simply not ambitious enough. We need a long-term plan to guarantee the UK’s energy security and bring down bills for families. We have called for an acceleration of home-grown renewables and new nuclear, a plan to double onshore wind capacity and reform our broken energy system, and a national mission to retrofit 19 million homes to save households an average of £400 a year on their bills.

[Alan Brown]

Will the hon. Lady give way?

[Abena Oppong-Asare]

I think that I have already been very generous.

Given the crisis facing the Conservative party, I do not have much confidence in them to deliver these essential priorities for Britain. While they spend the summer arguing among themselves, we on this side of the House will continue to provide the leadership that our country needs, just as we have with the windfall tax. We will stand up for families through the cost of living crisis, we will back British businesses and we will provide economic security for our country.

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a pleasure to close this important debate on behalf of the Government. We have talked today about the context of the Bill: the high oil and gas prices, and the extraordinary profits that are being received by the industry while working people struggle with the cost of living. We are introducing a temporary, targeted levy to fund cost of living support, at the same time as encouraging companies to invest.

Let me start by responding to some of the points made by the hon. Member for Ealing North (James Murray). He criticised our levy for not raising enough, but, as was pointed out by the hon. Member for Aberdeen South (Stephen Flynn), Labour’s proposal would have raised only £1.2 billion at the time when it was made, whereas our levy will raise £5 billion—more than the £4 billion called for by Greenpeace, more than the £3.7 billion called for by the Green party, and, as I have said, significantly more than the amount proposed by the Labour party.

The hon. Member for Ealing North criticised our scheme because it will encourage investment, while the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) said that we needed domestic energy security. We are ensuring that the important oil and gas sector will continue to invest so that we have that domestic energy security. The hon. Gentleman criticised us for not listening to industry, but I noted that neither of the Labour Front Benchers was able to say how or when they had engaged with industry. As Conservative Members know, last month the Chancellor held an industry roundtable which was attended by me and by the former Exchequer Secretary, my hon. Friend the Member for Faversham and Mid Kent (Helen Whately).

Let me quote some of what has been said by representatives of the industry about our investment proposal. Orcadian Energy has said:

“We believe the immediate investment allowance, included in the Energy Profits Levy, has transformed the attractiveness of domestic oil and gas projects for companies extracting oil and gas in the UK and it should spark further investment in the North Sea.”

Cornerstone Resources has said that there has been

“more interest in partnering with us”

in the last few weeks. I could go on, but what we are trying to do is raise money to help with the cost of living, at the same time as encouraging industry to invest in a vital sector.

Let me now answer some of the questions put to us by the hon. Member for Ealing North. First, I can confirm that the Chancellor supports the Bill. I also want to respond to the point about consultation. The hon. Gentleman was, of course, encouraging us to do this a long time ago, but now he says that we should have consulted for longer and, therefore, introduced the measure later. We have sought to engage, and put the industry on notice, as much as possible regarding the announcement of the levy. Ministers in my Department have been in regular contact with the industry and we also undertook a short period of technical consultation on the legislation for the levy. Hon. Members will know that draft legislation was published on 21 June, with stakeholders able to provide technical feedback on it until 28 June.

The hon. Member for Ealing North asked what we were doing about the electricity generation sector. As the former Chancellor said at the time, that is something we are urgently looking at. The hon. Gentleman said that we should follow Labour’s plan. Well, let us remember what Labour’s plan is. Labour has put forward £100 billion-worth of spending proposals, of which only £10 billion-worth are fully funded.

I would like to mention the passionate and important speech from my hon. Friend the Member for Waveney (Peter Aldous). He rightly identified the need to balance short-term measures with long-term investment, and I hope that that is what we are doing. He raised the importance of renewables. As I have had the opportunity to discuss with him before, there are other tax levers and non-tax levers to support non-oil and gas investment, including the super deduction and the UK’s research and development tax credit scheme. There is also the contracts for difference scheme, which provides developers of low carbon electricity generation with direct protection from volatile wholesale prices, and the £1 billion carbon capture infrastructure fund.

My hon. Friend also asked about the timeframe. That is an important point, because this is a temporary measure. There is a sunset clause in the legislation. It is rare to include a sunset clause, but we have done so to underline that this is a temporary measure with a timeframe of 2025. He raised the importance of dialogue with the industry, and I reassure him that we have engaged fully with the industry and will continue to do so.

[Alan Brown]

On carbon capture infrastructure, the Minister is well aware that the Scottish cluster has been made a reserve and been let down yet again. Can she define what “reserve” means, because nobody seems to know? Does she expect one of the two selected projects to fail, at which point the reserve would step up, or is it a question of dangling a carrot in front of it? What does “reserve” really mean, and why do the Government not just make the Scottish cluster a track 1 cluster?

[Lucy Frazer]

The hon. Member makes an important point, because we value the investment and work that is going on in Scotland in the oil and gas sector and in renewables. He knows that, because I and Ministers from the Department for Business, Energy and Industrial Strategy have stood at this Dispatch Box and engaged with him regularly on this. He is right to identify that that cluster is in reserve, and I am sure these matters are being discussed with the relevant Ministers in BEIS.

I recognise the points that the hon. Member for Aberdeen South made about the sacrifices made by those who work in this sector. I am grateful to him for making those points, which I am happy to associate myself with. He asked what the normal price was, and I would like to refer him to the comments that the former Chancellor made when he was questioned on this by the Treasury Committee. He said:

“The last time this was done, a price target was published, which was $74 or $75 for Brent…If you look at average Brent price over the last five or 10 years, that will give you something like $60 or $70 for oil…so that gives you a sense.”

This is something we will be considering in due course.

Energy (Oil and Gas) Profits Levy Bill

Alan Brown Excerpts

Committee stage
Monday 11th July 2022 Commons Chamber

Clauses 3 and 4 set out the types of operating and leasing expenditure that are eligible for the investment allowance, and they are modelled on the provisions for the supplementary charge investment allowance. For operating expenditure, the expenditure must have been incurred for one of the listed purposes, such as increasing oil extraction rates or oil reserves, and must be incurred in relation to a qualifying facility or oil well. However, the allowance is not available for routine repair and maintenance. Leasing expenditure must be for leases of at least five years, and must be for mobile production or storage assets such as floating production storage and offloading ships.

[Alan Brown]

The right hon. and learned Lady sent a letter to MPs saying that electrification will be covered in the offsetting, but does she agree that it should really be in the Bill? Ministers and Prime Ministers come and go, as we have seen, so the only way the industry can have full certainty and clarity is to have something in the Bill about electrification, which is the purpose of SNP amendment 9.

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Most importantly—and I really do wish that this Bill had been smothered—what does a tax rate of 65% say about doing business in the UK? Does it say, “Do well, and we may change the tax rate rather quickly on future profits, because you are doing rather too nicely”? My hon. Friend the Member for Waveney (Peter Aldous) made the point on Second Reading that these companies are fleet of foot. They can invest wherever they like. There is plenty of oil and gas around this world that they can go to, but where their investments may not be carried out and administered in such an environmentally positive way as in the UK. There might be very little monitoring of how much methane is being vented off and of the actual working conditions of people working off the coast of Brazil or the coast of Africa. I would rather that that was done in the UK, but that is a wider argument about energy security and why we should be doing things for ourselves.

[Alan Brown]

Is the hon. Member seriously saying that the companies that currently work in the North sea—companies that are environmentally responsible, take workers’ rights very seriously and look after their workers—might just move somewhere else in the world and give up on workers’ rights and the environment? That does not sound like responsible companies, yet that is what he seems to be saying they would do.

[Craig Mackinlay]

I am saying very clearly that big companies can make investments anywhere they please in the world, perhaps with tax regimes that are more suitable to them and where they are not being taxed at 65%. I would rather that they were investing here and staying here than going abroad to invest, with all the potential consequential impacts on the environment and employment. It seems that the hon. Gentleman agrees with me.