Finance (No. 2) Bill

Caroline Lucas Excerpts

Committee of the whole House
Tuesday 18th April 2023 Commons Chamber

The Conservatives’ refusal to strengthen the windfall tax means that billions of pounds of profits of the oil and gas giants are being left on the table. They are refusing to strengthen the windfall tax on those oil and gas giants while, at the same time, pushing up taxes for people across the country through a 5% hike in council tax. If we were in power, a Labour Government would freeze council tax this year, funded by a proper windfall tax on the oil and gas giants. That is Labour’s fair way to help families through the cost of living crisis. All the Conservatives have to offer is yet more tax rises on working people. If any Conservative Members agree with us, they can join us in voting for new clause 6.

[Caroline Lucas (Brighton, Pavilion) (Green)]

As well as the economic cost of the way that the windfall tax has been designed, does the shadow Minister agree that it has a massive climate cost, in the sense that we are incentivising oil and gas at exactly the time when we need to make the transition to green energy technologies?

[James Murray]

The hon. Member is right to point that out that, in addition to the points that I have made, the Government’s decision has a climate change impact. It shows, I think, in the design of the windfall tax that investment allowances really should have no place in a proper windfall tax on oil and gas giants’ profits. We want to scrap those investment allowances and to make sure that that money is spent helping people through the cost of living crisis that we face right now. I would very much welcome the hon. Member and any Member on the Conservative Benches joining us in voting for new clause 6, which will force the Government to come clean about how much money they would raise by strengthening the windfall tax—money that could go towards freezing council tax this year.

I have spoken so far about the clauses of the Bill that relate to the main rates of corporation tax, capital allowances and reliefs. I now turn my attention to another important way that the Bill impacts on corporation tax through parts 3 and 4, which relate to the new multinational top-up tax and the related domestic top-up tax. As I set out earlier, we desperately need greater stability and certainty in business taxes and allowances to help the economy grow in the future. We also need greater fairness to help people with the cost of living crisis right now.

That principle of fairness is crucial in making sure that British businesses that pay their fair share of tax face a level playing field when competing with large multinationals that may not do so. That is why we have, for so long, pressed the Government to back an ambitious global minimum tax rate for large multinationals. We have long needed an international deal on a global minimum corporate tax rate to stop the international race to the bottom and to help raise revenue to support British public services. We welcome the international agreement, fostered by the OECD, that makes sure that large multinationals pay a minimum level of 15% tax in each jurisdiction in which they operate.

As I set out on Second Reading, it has been a long and winding path to get to this point. The Prime Minister, when he was Chancellor, was often lukewarm in his support of such an approach. However, the deal now faces a new front of challenges, as Conservative Back Benchers have begun to be open in their hostility towards the implementation of the deal, as we have seen in this place today. We believe that it is crucial to get this legislation in place, so I hope the Minister can reassure us today that those parts of the Bill that introduce a multinational top-up tax will not be bargained away in the face of opposition from Conservative Back Benchers.

On Second Reading, we heard from the right hon. Member for Witham (Priti Patel) and others as they rallied their colleagues against the global minimum rate of tax for large multinationals. We therefore want to press the Government to make sure that, in the face of opposition from their Back Benchers, they do not back away from implementing this landmark deal.

That is why we have tabled new clause 1, which would require the Chancellor to report every three months for a year on the Government’s progress in supporting the implementation of OECD pillar two rules. The quarterly reports mandated by the new clause would update the House on the Government’s progress towards implementation. Those updates must include details of what efforts the Government have undertaken to make the rules as effective as possible. They must explain what the Government have done to encourage more countries to implement the pillar two rules—a point made by the right hon. Member for Chelmsford (Vicky Ford), who is no longer in her place. This is important because we know that the rules will be more effective the more widely they are implemented. I hope that the Government will support our new clause, which commits them to giving these updates. Surely that is a matter on which we broadly agree. Even if Ministers do not support the new clause, I hope that many Conservative Back Benchers do.

On Second Reading, the right hon. Member for Witham expressed her concern that the implementation of the OECD rules had so far progressed with “very limited scrutiny”.

Although I know that she and I, and others on the Conservative Benches, may have very different views on these rules and on what they will achieve, surely she and her fellow Back Benchers will not vote against transparency and will not try to block our new clause that simply requires updates to Parliament every three months.

--- Later in debate ---

[Sarah Olney]

I welcome the Scottish National party’s support for our new clause.

I ask the Government to accept the Liberal Democrat amendment proposing an impact assessment on the changes to R&D tax credits. It is essential that this policy is kept under review and its impact on the UK’s tech industry and long-term economic growth is monitored if we are to ensure that the UK becomes the powerhouse of technical innovation it so badly needs to be if we are to drive the productivity we need to increase growth across all economic sectors.

[Caroline Lucas]

I rise to speak in support of new clause 10, which stands in my name and addresses the decarbonisation allowance first announced by the Chancellor in the autumn statement and now legislated for in this Bill. Although in principle the decarbonisation allowance may sound innocuous or even useful, it is in fact an outrageous subsidy that sees the taxpayer paying companies to decarbonise their activities.

Under this scheme, a company spending £100 on so-called “upstream decarbonisation”—in other words, reducing emissions from the process of extracting oil and gas that then goes on to be burned—is eligible for £109 in relief. We should remember that these companies have themselves admitted that they have

“more cash than we know what to do with”,

and earlier this year they recorded obscene, record profits, with BP’s profits more than doubling to £23 billion and Shell reporting annual profits of more than £32 billion, all while millions of UK households face unbearable choices between basic needs and desperately struggling to make ends meet.

In his Budget statement, the Chancellor recognised what he called the enormous pressures on family finances, with some people remaining in real distress, yet even with the decision to freeze the energy price guarantee at £2,500 as of this month, bills will still rise by almost 20% and 7.5 million households will be in fuel poverty. It is utterly perverse that in this context the Government have decided to hand the climate criminals—those who have profited from the spoils of war—yet another subsidy. These are, at bottom, political choices.

The Chancellor may say, in response to my amendments, that we should be endorsing the decarbonisation allowance to cut emissions from the oil and gas sector, but that ignores the economic reality of the situation and the reality of our planetary boundaries, with upstream decarbonisation doing nothing to mitigate the end result of the fossil fuels choking our precious planet. I am afraid that, in the face of worsening climate impacts, paying companies to power oil rigs with wind turbines or to monitor emissions to detect leaks simply does not cut it. Even more alarming is the provision in the Bill for the decarbonisation allowance to support carbon capture. That UK taxpayers would pay oil and gas companies to capture their emissions in order to allow them to continue production—essentially, to continue business as usual—is a shocking violation of the “polluter pays” principle.

If the Government were seriously looking at reducing production emissions, they would, for example, be looking to bring forward an outright ban on flaring by the end of 2025 at the very latest—I remind Members that flaring has been banned in Norway since 1971—or they would be strengthening the lamentable targets in the North sea transition deal from a 50% reduction in emissions by 2030 to at least a 68% reduction, as proposed by the Committee on Climate Change in its balanced pathway, both of which have been called for by the Environmental Audit Committee, of which I am a member. Yet in their response to the EAC’s report on “Accelerating the Transition from Fossil Fuels and Securing Energy Supplies”, the Government roundly rejected both recommendations, maintaining that the existing targets in the North sea transition deal are “sufficiently ambitious”.

This is not a Government who are serious about cutting emissions from production, and they are certainly not serious about the climate crisis. New clause 10 recognises that the decarbonisation allowance is just one of the handouts to fossil fuel companies that have been introduced under the energy profits levy. It would require the Government to produce an assessment of the cost of the decarbonisation allowance to the Treasury and, crucially, its impact on overall investment in oil and gas production. It would also reveal how much money would be raised through the energy profits levy without the enormous gas giveaways in the form of both the investment allowance and the decarbonisation allowance, as well as assessing their impact on delivering our crucial climate targets.

At this point, I would like to say a few words in support of new clause 6, which would require the Chancellor to conduct a review of the decarbonisation allowance and its impact on public finances, although it is important to note that the amendment is somewhat narrower in not requiring an assessment of climate impacts as well. The Government are very transparent about the fact that the investment allowance is directly aimed at encouraging companies to pump more money into oil and gas extraction in the UK by allowing them to claim £91.40 for every £100 invested. That policy runs directly counter to the advice of the world’s leading scientists on what is needed to keep 1.5° within reach, with the UN Secretary-General calling for a cessation of

“all licensing or funding of new oil and gas”

at the recent launch of the Intergovernmental Panel on Climate Change’s “AR6 Synthesis Report”, and the report itself being clear that emissions from existing fossil fuel infrastructure already exceed the remaining carbon budget for 1.5°.

The bottom line is that our climate simply cannot take any new oil and gas licences. As I have said time and again, new licences would also fail to deliver energy security. With the oil and gas sold on global markets to the highest bidder, they will not bring down bills in the UK and will inevitably come at a huge cost to the taxpayer. Indeed, if we take just one example, Rosebank, the UK’s largest undeveloped oilfield, the costs become clear. Rosebank is enormous. At triple the size of the neighbouring Cambo oilfield, it would produce more emissions than 28 low-income countries combined or, to put it another way, it would produce the carbon dioxide equivalent of running 58 coal-fired power stations for a year. If developed, its owners will be gifted a £3.75 billion taxpayer-funded subsidy from the Government to the estimated £4.1 billion project. The Norwegian state-owned company Equinor, which made a staggering £62 billion last year, contributed just £350 million while pocketing enormous profits.

Finance (No. 2) Bill

Caroline Lucas Excerpts

Committee of the whole House
Wednesday 19th April 2023 Commons Chamber

To conclude, the Opposition have real concerns about the Government’s energy policy. Although we support the electricity generator levy, we do have some serious questions for the Government. We need to see greater security detail on these to give the sector certainty and to ensure that these measures do not stifle investment in renewables.

[Caroline Lucas (Brighton, Pavilion) (Green)]

I am delighted to have the best part of an hour and a half to talk about the electricity generator levy—[Interruption.] No, not really.

I rise to speak in support of new clause 11, which would require the Government to conduct an assessment of the impact of the electricity generator levy on investment in renewable energy in the UK, exactly picking up on the point that was made by the Official Opposition just a moment ago.

In his speech in the spring Budget, just one month ago, the Chancellor proudly declared:

“We are world leaders in renewable energy”.—[Official Report, 15 March 2023; Vol. 729, c. 840.]

Since then, the Government have published their latest energy security plan, which points to “low-cost renewables” as being “central” to their goal of Britain having among the cheapest wholesale electricity prices in Europe. The strategy is absolutely right in that regard; the International Energy Agency’s “World Energy Outlook” makes clear that, in the context of the energy price crisis, countries with a higher share of renewables also had lower electricity prices. In the words of the IEA’s executive director, Dr Fatih Birol:

“The environmental case for clean energy needed no reinforcement, but the economic arguments in favour of cost-competitive and affordable clean technologies are now stronger—and so too is the energy security case.”

In light of all that, it seems extremely perverse—to put it mildly—that, rather than the Government doing everything they can to unleash our abundant renewables, their current policy is stifling the investment we desperately need. A recent report by Energy UK warns that the investment climate for renewables has deteriorated significantly in recent months due to a combination of factors, including what it describes as “poorly designed windfall taxes. The report also states that, without urgent action to address concerns and prevent investment from moving elsewhere, the UK risks losing out on £62 billion-worth of investment this decade, which could also lead to a shortfall of 54 GW of potential solar and wind capacity, which would be enough to power every single UK home.

RenewableUK has criticised the Government for continuing to develop policies that,

“increase uncertainty and dampen investment”,

with the electricity generator levy in particular damaging investor confidence and increasing costs. While it is right that companies are taxed fairly on their excess profits, hampering our vital renewable energy industry when a expansion is essential to deliver on our climate targets is reckless.

The Government’s own plans include increasing our offshore capacity by four times over current levels by 2030 and solar by five times by 2035. My amendment would therefore also require an assessment to cover the impact of the electricity generator levy on the delivery of those UK climate targets, including net zero by 2050, and on our legally binding carbon budgets.

Most egregious of the complaints laid at the door of the EGL is that it is more punitive than the tax and relief regime for oil and gas companies. The sector has highlighted three key differences between the regimes. First, the electricity generator levy is a tax on revenue rather than overall profit, as with the energy profits levy, which results in an above-the-line cost of doing business rather than a reduction in profit.

Secondly, the electricity generator levy is not deductible from corporation tax, whereas the energy profits levy is an extension of an existing scheme. That leads to higher effective tax rates for electricity generators than is currently the case for oil and gas companies.

Thirdly and most importantly, oil and gas companies are eligible for vast and frankly obscene subsidies through the investment allowance that renewables do not have access to. If we add to all that the decarbonisation allowance, which means that the taxpayer is paying oil and gas companies to decarbonise—even though, in their own words, the companies already have more cash than they know what to do with, thanks to their vast windfall profits—it seems to me that the Government’s approach is misguided.

The approach means that, in the case of a decarbonisation allowance, companies are eligible for more tax relief if they are putting a wind turbine on an oil platform than if they are installing a wind turbine to feed into the grid. Put simply, we should be incentivising investment in renewables to power homes, not rigs. The amount of power it takes to drill for oil and gas is comparable to the total amount of power generated by offshore wind, or enough power to generate electricity for every house in Wales.

That should be paid for by the very oil and gas companies that are reaping such huge profits, not by the taxpayer. Surely the Chancellor and Treasury team can see that, when we need to urgently get off fossil fuels to secure a liveable future, it is madness to subsidise oil and gas extraction at all, let alone at the expense of renewable energy, as the Government are doing.

My amendment would require a comparative assessment of the impact of the energy profits levy, including the investment allowance, on investment in oil and gas production versus the regime the Government are proposing for renewables. Renewable energy companies have rightly called for a level playing field with oil and gas, but, in the face of an escalating climate emergency, we should be going further than that and responding to the ambition of other countries. Biden’s Inflation Reduction Act, for example, offers $216 billion-worth of tax credits to companies investing in clean energy and transport.

Finally, I record my support for the amendments tabled by the hon. Member for Richmond Park (Sarah Olney), which would allow generators of renewable energy to offset money reinvested in renewable projects against the levy. Yet failing that, surely the Chancellor cannot object simply to having, at the very least, clarity on the impact of this policy. That is exactly what my new clause would do, and I very much hope that the Treasury team will consider it.

The Government are fond of pointing to the fact that almost 40% of our electricity is now generated from renewables, but if we are to fully decarbonise our electricity system, we need the right incentives, a supportive policy framework, an improved grid fit for the 21st century, and a planning system that does not hold renewables back. We simply cannot rely on what the Chancellor called a “clean energy miracle”. I very much hope that the Government will take new clause 11 seriously.

[James Cartlidge]

It is a pleasure to respond to the hon. Member for Brighton, Pavilion (Caroline Lucas). I hope that she will not take it as a lack of respect if I say that it is probably a good thing that she did not go for the full one-and-a-half hours, but she made important points to which I will respond. Both she and the Labour Front Bencher, the hon. Member for Erith and Thamesmead (Abena Oppong-Asare), asked about the impact on investment.

New clause 11, in the name of the hon. Member for Brighton, Pavilion, specifically proposes that the Government publish within six months an assessment of the impact of the EGL on investment in renewables, and a comparison with the impact of the energy profits levy. First, I am bound to say, in the immortal words of the Treasury, that we keep all policies under review. We will, in the course of normal tax policymaking, return to make an assessment of the EGL’s impact at a suitable time. On investment specifically, we have to appreciate that this country has led the way in securing investment in renewables. Bloomberg New Energy Finance data shows that the UK has secured nearly £200 billion of public and private investment into low-carbon industries since 2010. Generators have received to date almost £6 billion in price support from the contracts for difference scheme for low-carbon electricity generation. CfDs have contracted a total of 26 GW of low-carbon generation, including around 20 GW of offshore wind. I hope that we are all proud of the result, which is that we as a country now have the largest array of offshore wind in Europe. Going forward, we have committed £160 million for the floating offshore wind manufacturing investment scheme to support floating offshore wind, and up to £20 billion for early deployment of carbon capture, usage and storage.

Our record to date is also crucial. The hon. Member for Brighton, Pavilion spoke about the Inflation Reduction Act and the steps being taken in the US. Of course, that is important, and we watch what is happening there very carefully, but it is worth reflecting on the fact that, as she quite rightly said, about 40% of our electricity came from renewables last year, while in the US that figure was about 20%.

There are two key things about the EGL and investment. First, we have to remember that the levy does not apply to the contracts for difference, which have been hugely successful in securing renewable energy investment and will cover the mainstay of future deployment in this country in relation to renewables. Secondly, the threshold price of £75 per megawatt-hour is exceptional; it is about 50% higher than the average over the past decade. The extraordinary energy prices, driven by Putin’s invasion of Ukraine, would not have been foreseen by investors when they committed capital to the building of wind and solar farms—they would not have foreseen such a huge increase.

The hon. Lady, whom I respect, has made her key point about oil and gas consistently; in many ways, the Labour party’s criticism of our investment allowance, which it calls a loophole, is the same point. We differ in our view. In the world today, we face a most profound energy crisis. It is a strategic energy crisis. We look at Russia, which has weaponised energy, and we ask ourselves: “Is it the right moment to be turning our back on our own domestic supply of oil and gas?” We need it. Of course, we are on the path to net zero—this country has cut its emissions more than any other nation in the G7; we are making that difference—but the journey is a long one. In that time, we will need oil and gas, which make up about three quarters of our energy demand when all transport is included. Unless the hon. Lady and the Labour party think that we should stop using oil and gas tomorrow, what they are really arguing for is simply to use more imported oil and gas.

[Caroline Lucas]

I am so fed up with this argument from the Government, because nobody is talking about turning off oil and gas tomorrow. We are talking about whether the world can sustain more new oil and gas, particularly from a country such as the UK, which is so blessed with alternatives. We were also one of the first countries to industrialise, so we have a greater responsibility to take a real lead on this. That is why the Government should invest in alternatives, renewables and energy efficiency, and listen to the IEA, which says that there is no space for new oil and gas.

[James Cartlidge]

As I have said, I respect the hon. Lady’s position, but the point is that if we were to have no further investment, the North Sea Transition Authority estimates that we would lose about 1.5 billion barrels-worth of output. There is no realistic estimate that we would not use an equivalent amount. In other words, we would simply import it, and if we import gas, that means 50% more emissions. Most importantly—and I feel very strongly about this—we would undermine our energy security. Even yesterday, representatives of the Kremlin were still talking about weaponising energy. If we have learned one thing, surely it is that we have to be realistic and pragmatic. We want to support the UK economy. Above all, we have a balanced approach. We are on the journey to net zero. We have cut our emissions more than any other country in the G7, and we continue to back renewables.

[Caroline Lucas]

Will the Minister give way?

[James Cartlidge]

I will take one final point and then wrap up.

[Caroline Lucas]

The Minister is very generous in giving way again. I simply want to make the very obvious point that simply because oil and gas are extracted from the North sea, there is no guarantee that they will be used by people in the UK. They get sold on global markets at the highest price, so the argument that this is the best way to reach energy security is flawed. The best way to reach energy security is through introducing a mass energy efficiency and home insulation upgrade system, which the Government have not done; through more on electrification of transport, which they have not done; and through investing in renewables, which they are not doing enough of, as we have been saying this afternoon.

[James Cartlidge]

This is entirely true, but of course selling on the international market means that, through our balance of trade, we have an economy where we can afford to import. It is about comparative advantage.

As I have described, the Government are providing extensive support for renewables in order to decarbonise our power system and meet our ambitious net zero commitments. The EGL has been carefully designed with those objectives in mind. I therefore urge the Committee to reject the amendments and to agree that clauses 278 to 312 stand part of the Bill.

Question put and agreed to.

Clause 278 accordingly ordered to stand part of the Bill.

Clauses 279 to 312 ordered to stand part of the Bill.

Clause 27

Power to clarify tax treatment of devolved social security benefits

Question proposed, That the clause stand part of the Bill.