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Caroline Lucas
Main Page: Caroline Lucas (Green Party - Brighton, Pavilion)Department Debates - View all Caroline Lucas's debates with the HM Treasury
(2 years, 4 months ago)
Commons ChamberThank you, Dame Rosie, for clarifying that. I think that we will find that the hon. Member for Aberdeen South (Stephen Flynn) was being a touch facetious.
Will the hon. Member give way?
I had not developed a point, but, please, make an intervention.
I am grateful to the hon. Member for giving way—I am intervening on a previous point on which he was intervened on. Is he aware that the 65% tax that the Government are proposing is still below the global average? The figure in Angola is actually higher at 70%, so there is not any real logic to what he is saying. These oil companies are already operating in places where the tax is higher.
Let me take a couple of those points. The hon. Lady makes the point that tax rates on the oil and gas industry are higher elsewhere in the world. Well, that may be the case. I know that some will be fundamentally opposed to the whole concept of being energy secure in the UK. Gas, in my view, is part of an interim solution as we get on the path to net zero, but it is a fact of life. I do not have an awful lot of time for the output of the Climate Change Committee, but even it is saying very clearly that we will be using gas and oil up to 2050 and probably beyond. My view is that that gas and oil should be sourced in the UK. Hence my support for the nudge part of this legislation, which may encourage businesses to stay here and invest here.
I did not address properly the point from my hon. Friend the Member for Banff and Buchan (David Duguid). He makes the point that we have the most fantastic environmental standards not just in oil and gas technology, but in practically everything that we do in the manufacturing space in the UK. There will be very few regimes around this world that have such high standards. On the issue of methane venting, which we have not really addressed, I can be absolutely sure that, with a very robust and advanced regulatory regime, the advanced oil and gas companies of this country will be telling the truth and doing the right thing rather more than may be the case elsewhere, and I think we have to accept that as a fact of life.
First, the hon. Member seems to think that just because gas is exploited in the UK, it will get used in the UK, yet he must know that it gets sold on global markets and therefore might get used anywhere. Secondly, he talks about our environmental standards being higher than others. He will know that we get most of our gas from Norway, where, actually, its carbon footprint is significantly less than it is here in the UK. His argument just does not stand up.
I am so delighted that the hon. Lady has expanded this debate. This is not somewhere that I wanted to go, Dame Rosie, but I think it is my duty to respond to the intervention. Surely it is obvious, no matter where on the spectrum on net zero we are—I am obviously on the rather more critical part of that spectrum—that we will be having gas in this country. We have a choice: do we import it halfway across the world on a liquefied natural gas ship, with the CO2 cost of chilling it, transporting it and regasifying it, or do we try to do that domestically?
If I may, Dame Rosie, I will address the hon. Lady’s questions. On international markets, I do not know any more about economics than this: if we add more capacity to any system, the price should drop. Even if her view of economics holds water and the price does not drop, which I think is the basis of what she is saying, would I prefer the pounds of gas revenue to be at least retained and spent in the UK, or do I want to export those pounds to Qatar? I do not think there is much choice, and the answer is obvious.
I will finish now, Dame Rosie—I am sorry for the time I have taken, but I am grateful for your indulgence. If we take up this type of proposal of penal taxes that can be changed within a month, we will lose in future deferred taxes the opportunity cost of investment. Big companies will say, “Do you know what? The UK is not a place for good investment. I think I will take my money elsewhere.” We may get £5 billion out of this tax as a windfall, but over time, in my view, we will lose more than £5 billion in the lost opportunity of businesses being attracted to the UK.
I have never believed, as has said in the House this afternoon, that the investment plans of the big oil and gas companies will be unaffected by this. I have been having discussions with them. There are already signs that they are scaling back their investment activities to the detriment of UK energy security, and I am afraid this Bill does not help with that all. If there is a Division on Third Reading, I will be voting against the Bill this evening.
That is an important point well made by my hon. Friend. That is what this is really about. It is a political choice that we are discussing.
On the Government’s major loophole that I referred to, which gives a 91p tax saving for every £1 invested by the oil and gas companies, we need to be clear that it is a subsidy to oil and gas giants. It takes money away from supporting families and encourages further fossil fuel production when we need to be ending all new oil and gas production to avoid climate catastrophe.
With another huge spike in energy prices now expected, much more needs to be done to help families. The Government should start by accepting my amendment and others that would see less going into profits for oil and gas firms, and more into bailing out people facing the biggest crisis in living memory.
It is a pleasure to follow the hon. Member for Leeds East (Richard Burgon), whose new clause 1 I am happy to support. I rise to speak in favour of new clauses 8 to 10 tabled in my name.
First, new clause 8 would require the Government to produce an assessment of the revenue that would be generated if the level of taxation on oil and gas companies were permanently raised to the global average of 70%. That is 5% higher than the total level of taxation with the addition of the Government’s levy, but it would be permanent.
I know the new Chancellor may be disinclined to increase taxation on the oil and gas industry, given that he has benefited so handsomely from it in the past, previously earning £1.3 million from his executive position at Gulf Keystone Petroleum, including a whopping £285,000 settlement payment when he stepped down from that role in 2018 after becoming a Minister. However, it is important to understand that the level of taxation that this new clause proposes on oil and gas would simply bring the UK into line with countries such as Angola and Trinidad and is backed by 63% of the public. By way of comparison, it may be interesting to note that the UK’s North sea neighbour, Norway, has a taxation rate of 78%, and that does not seem to have done it any harm. I therefore hope that the Government will recognise that this is a very reasonable amendment that it should be easy for them to support.
The reason I am proposing a permanent taxation level is that the UK currently has the lowest tax take in the world from an offshore oil and gas regime. That is not a badge of honour; it should be a badge of shame. Indeed, Norway’s tax take from a barrel of oil in 2019 was over 10 times the equivalent here in the UK. The amendment would simply require the Government to assess the impact of ending that shameful state of affairs. Greenpeace estimates that a tax at that level would generate an additional £13.4 billion for the Exchequer in comparison with the status quo—money that, in addition to providing immediate support to households to cope with the cost of living scandal, could be used to invest in much-needed energy efficiency, quite literally insulating households from escalating costs.
To date, the Government have spent £37 billion on short-term financial support. Although that support is of course very welcome, gas prices are likely to remain high for several years, and a more long-term approach is necessary, especially when the CEO of Ofgem is warning that the number of households in fuel poverty could reach 12 million in October when the energy price cap rises again. The think-tank E3G estimates that the average household with an energy performance certificate of D or lower will be paying what it calls an inefficiency penalty of £916 per year for adequate heating compared with households with an EPC of C or higher. Investment to kick-start a local-authority-led, street-by-street home insulation programme would save cash-strapped families money not just this year but every year. It would also rectify a glaring omission in the Government’s approach so far, with the Climate Change Committee saying clearly in its 2022 progress report to Parliament:
“Given soaring energy bills, there is a shocking gap in policy for better insulated homes.”
New clause 9 would require the Government to produce an assessment of how much revenue would be generated by the energy profits levy if the investment allowance were removed. I also support the Labour Front-Bench amendment that would simply delete the clause on the investment allowance, which is nothing less than a scandal. As the Chancellor and his team very well know, it will come at huge cost to the taxpayer. Analysis by the New Economics Foundation suggests that the investment allowance will cost £1.9 billion a year because any subsidised oil and gas projects will not start to return a profit until after 2025—the date of the sunset clause in the Bill.
I very much support what the hon. Lady is saying. Is she aware that in Germany for three months in succession people are being offered a €9 a month pass that can be used on all public transport, thereby shifting people on to public transport, reducing energy costs, encouraging environmental green investment, and stopping our addiction to fossil fuels? Does she think that a higher tax could help us to do that and put us on a more sustainable route to a green future?
I am grateful to the hon. Gentleman for his intervention, particularly since it helpfully highlights a party policy of the Greens, who were, as he knows, in coalition Government in Germany. It has absolutely been their policy to introduce those kinds of incentives, and they are being massively taken up because they are incredibly popular.
I was talking about the investment allowance and just how egregious it is. The Institute for Fiscal Studies says that investing £100 in the North sea now will cost companies just £8.75, with the public picking up the remaining investment costs in the form of the forgone windfall tax. What is more, there is a chance that this new subsidy could lead to the development of otherwise economically unviable projects, becoming stranded assets of little or no economic value. Oil and gas companies are benefiting from that right now. For example, according to analysis by Rystad Energy, Shell, which recorded quarterly profits of over £7 billion earlier this year, will pay £210 million less in windfall tax for investment in the newly approved Jackdaw gas field.
The investment allowance also significantly reduces the amount of revenue generated, which is why I can only assume that the Treasury believes that its levy will raise only £5 billion in its first 12 months, especially since oil and gas company profits are expected to reach £11.6 billion this year, with BP’s chief executive describing the company as a “cash machine”. Let us remember that, as other hon. Members have outlined, these profits are not earned; they are a consequence of high global gas prices fuelled by Russia’s illegal invasion and war in Ukraine, and must be urgently redistributed to provide vital support to struggling families. Will the Government now publish their full impact assessment? Will they accept this crucial amendment so that we can have clarity over the cost of their perverse proposal?
The subsidy in the Bill is unfortunately entirely consistent with the Government’s approach to subsidising the fossil fuel sector overall. While they refuse to acknowledge that tax reliefs are indeed subsidies and prefer to use the very narrow International Energy Agency definition of a subsidy, Ministers and colleagues will know well that there are much wider definitions in use, including that developed by the World Trade Organisation, which would very definitely include the investment allowance. If the Government go ahead with this subsidy, it will come on top of countless other tax reliefs from which the sector benefits, including those for exploration for new fields, for R&D, and for decommissioning. The latter, for decommissioning, has an especially egregious element in the form of decommissioning relief deeds that guarantee future tax reliefs for oil and gas companies at a given rate. Imagine any other sector being guaranteed tax reliefs in perpetuity with future Governments unable to make changes to that! Companies should pay decommissioning costs, with decommissioning plans required to ensure a just transition for workers. That is the only fair approach. The measures in the Bill will add to the decommissioning tax relief burden faced by the public purse going forward, to say nothing of the impact on fossil fuel extraction.
The hon. Lady will be interested to know that people in Swansea University are looking at using the energy from wind farms that is not used by the grid off-peak to create hydrogen that can be put in the gas pipes to dilute the gas to reduce the carbon footprint of everyday gas. Would it not be better to put the money into those sorts of green investments rather than digging more and more holes to destroy the planet?
Again, I am grateful to the hon. Gentleman. Those are precisely the kinds of forward-looking policies that we need rather than the backward-looking, dinosaur policies that seem to think that digging out more and more fossil fuels is the way forward.
To make the same point that I made to my hon. Friend the Member for Leeds East (Richard Burgon), can I urge the hon. Lady to follow the money? For as long as these tax credits are given to the oil and gas companies, they are passed on to the people who control the Conservative party in the City—the big hedge fund investment billionaires who have massive incomes because of their ownership stakes in those companies.
The hon. Gentleman puts it perfectly succinctly and I very much agree.
It has been estimated that existing decommissioning relief deeds could enable the extraction of the equivalent of 1.7 billion barrels of oil that otherwise would have remained unextracted, and that will only increase if we continue with the vicious cycle of handsomely subsidising fossil fuel companies to exploit oil and gas reserves. In response to the Glasgow Climate Pact’s call for parties to
“phase out inefficient fossil fuel subsidies”,
the Climate Change Committee said that the Treasury should initiate a review of the role of tax policy in delivering net zero, and was very clear that no fossil fuel subsidy should be considered efficient in the UK. Will the new Chancellor now commit to that review, listen to his own Climate Change Committee, and take its advice?
New clause 10 would require the Government to produce an assessment of the impact of the investment allowance on achieving net zero and on limiting the global temperature increase to 1.5°. It is frankly astounding that the Government need to be reminded yet again that the IEA has been clear that limiting global temperatures to 1.5° necessitates
“no new oil and gas fields approved for development”
as from last year. Yet according to the United Nations Environment Programme, the level of fossil fuel production planned and projected worldwide by Governments in 2030 is more than twice the levels consistent with that goal. The UK has given North sea oil and gas companies almost £14 billion in subsidies since signing the Paris agreement in 2015 alone. This Bill was an opportunity for the Government to change course, but instead they have chosen to double down and to play with fire by bringing forward a Bill that is plainly incompatible with a safe future.
It is patently obvious that the Government should amend the Bill to ensure that oil and gas profits are taxed properly, but I believe fundamentally that that should pave the way for a much wider overhaul of our tax system. We need a carbon tax, which, if implemented properly with a dividend to shield low-income households, could be pivotal in driving the change we need in order to decarbonise our economy fairly. That tax—it has long been Green party policy—would target the big polluters such as oil and gas companies. It is estimated that, starting at a rate of about £100 per tonne of CO2, it could generate up to £80 billion to fund the transformation necessary to achieve our climate goals. That is the kind of innovative policy we need right now to save ourselves from the climate emergency that is only growing deeper.
Many of the points that have been raised in Committee were considered on Second Reading, but I would like to touch on a few of them and then deal with amendments.
The hon. Member for Ealing North (James Murray) asked how the new investment allowance works. On 6 June, I said I was very happy to look further at this point, and I can reassure him that the investment allowance within the levy will be generated on investment expenditure —that is, capital expenditure and some operating and leasing expenditure—incurred on or after 26 May. The legislation includes an anti-avoidance provision to prevent any recycling of existing assets from getting the allowance, and that is all very clearly set out in clause 6.
I want to deal with some of the points made by my hon. Friend the Member for South Thanet (Craig Mackinlay), because I understand his objections, and no Conservative wants to bring in a tax rise where it is not necessary. I have had the opportunity to talk to him on a number of occasions about these measures, and he will know that they are targeted and temporary. He says he fears for investment coming through, but of course that will be assessed by the OBR in due course. I am not sure whether he was in the Chamber earlier when I quoted some companies that have said that they will be investing and that this encourages investment, but I will mention a further one. Kistos has said that it is
“assessing opportunities in the UK that would enable us to take full advantage of the investment allowances implicit in the recently introduced UK Energy Profits Levy”.
I turn to the amendments. Amendment 1 would require companies to report on how much additional tax relief they are claiming as a result of the levy’s investment allowance, in addition to the existing requirement to report how much levy is payable. The amendment would also require that data to be published on a quarterly basis. Companies will already be reporting the information to HMRC that allows it to ensure appropriate compliance with the law, and figures on the amount of tax raised through the levy will also be published on a periodic basis in line with other taxes. As a result, this amendment should not be made to the Bill.
Amendment 9 would add clarification to the allowable purposes of expenditure under the levy’s investment allowance. I have already dealt with that point on Second Reading, and I confirm to the Committee that HMRC will clarify this in written guidance.
New clause 1 calls for an assessment of the impact on revenue and on oil and gas companies’ profits of a 45% levy rate. Similarly, new clause 8 calls for assessments of the revenue impact of a permanent 30% levy rate, which would bring the permanent headline rate of tax for oil and gas companies in ringfence corporation tax to 70%. However, it is not standard—I will be saying this in relation to a number of new clauses—for the Government to publish assessments of the fiscal and economic impacts of measures that they are not introducing, and it is not clear that doing so would be a beneficial use of public resources. Therefore, I recommend that the Committee rejects these new clauses.
Again, new clauses 3, 5 and 9 would require reviews or assessments of policies that the Government are not introducing. New clause 3 would require a review of the revenue that would have been raised had the levy taken place from early January. I set out on Second Reading why we did not bring forward this measure earlier, and I did so last week as well. We are not supporting these measures because, as I have said, it is not usual to bring forward public assessments of measures that we are not introducing.
New clauses 2, 6 and 10 would require reviews or assessments of the impact of the investment allowance on the energy market, climate change commitments and exploration activity. The Government oppose these amendments on the basis that the Treasury already carefully considers the impact of all measures on the energy market and our climate change commitments as a matter of course.
New clause 4 would require a review of the amount of investment allowance that will be claimed and how it relates to expenditure that would have happened were the investment allowance not in place. The first point to reiterate here is that the Government expect the combination of the 25% levy and the 80% investment allowance to lead to an overall increase in investment, and the OBR will take account of this policy in the next forecast. HMRC already publishes data on the costs of non-structural reliefs, which will include the investment allowance in due course, once data is available.
Finally, new clause 7 would require the Government to publish regular reviews of the oil and gas market, including assessments of the need for the levy and whether it should be continued to promote further decarbonisation of upstream oil and gas activities. That is also unnecessary, since the Government already monitor the UK oil and gas sector, and data is published on gov.uk on a monthly and quarterly basis.
For all the reasons I have set out, I urge Members to reject all the amendments and new clauses. I commend the clauses and schedules to the Committee.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Additional expenditure treated as incurred for purposes of section 1
Amendment proposed: 9, page 2, line 42, at end insert
“, which may include electrification investment that decarbonises upstream oil and gas activities”.—(Stephen Flynn.)
This amendment would put on the face of the bill that electrification investment which decarbonises upstream oil and gas activities is eligible for relief.
Question put, That the amendment be made.