Energy (Oil and Gas) Profits

Caroline Lucas Excerpts

Tuesday 5th July 2022 Commons Chamber

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

The Government are introducing this Bill in response to the extraordinary profits being made by the oil and gas sector—profits that are not earned but are a consequence of high global gas prices, fuelled by Russia’s illegal invasion of Ukraine. As families across the country are struggling to make ends meet, faced with rising energy bills and a cost of living scandal, energy companies operating in the UK are predicted to make an eye-watering £11.6 billion of unexpected windfall profits this year from oil and gas extracted from the North sea. Not only is it right that those windfall profits are taxed and redistributed to provide vital support to households, some 6.5 million of which are now living in fuel poverty, but, frankly, it would be morally reprehensible to do anything else.

I therefore welcome the fact that the Government are finally introducing a windfall tax—or an “energy profits levy”, as Ministers prefer to call it. That is something that I, too, called for a very long time ago. However, I am extremely concerned that it is being rushed through, with the consultation open for just five working days and the Bill receiving only one day of full scrutiny in this House. That is patently insufficient time to consider legislation of this complexity and importance.

We must consider first whether the tax is set at a level that constitutes an adequate response to the ongoing energy crisis. In the sixth richest country in the world, April saw more than 2 million adults not eat for a whole day because they could not afford or access food. The energy levy is one of the tools we have to tackle this social scandal. We have a deep responsibility to use it to full effect and to ensure that this is the beginning of the end for such grotesque levels of poverty and inequality.

Secondly, we must consider the impact of the proposed investment allowance on not just domestic but global emissions. I know that the Treasury does not even recognise the idea of subsidies in the fossil fuel sector, but that does not change the reality. Make no mistake: this is a subsidy. It is reckless, and its climate impacts make a mockery of the Government’s claim to global climate leadership.

I understand the Government’s desire to give certainty to companies and bring forward this tax with urgency, but the draft explanatory note makes it clear that the levy

“will have effect for profits arising on or after 26 May 2022.”

In other words, it is already backdated. That means that allowing more time for proper consultation and scrutiny would not materially affect the outcomes of imposing the levy.

I support going further than the Government intend to by imposing a permanent tax on companies, to be levied at a rate of at least 30%, bringing the total level of tax on oil and gas company profit to 70%. That 30% increase is a small one on the Government’s proposed 25% levy, yet it would bring the UK in line with the global average, joining countries such as Angola and Trinidad. It has been estimated that a tax of that level would generate an additional £13.4 billion for the Exchequer. I made this point in my submission to the Government’s consultation, and I very much hope that Ministers will judge that it warrants serious consideration and will revise their Bill accordingly before it is presented to the House next week.

On the permanency of the tax, I know that Ministers will point to the fact that this Bill is intended to address the windfall profits of oil and gas companies, and that there will come a time again when gas prices are lower and profits are not so high. But as the Treasury team know, 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 is a badge of shame. In Norway, the Government get $22 per barrel of oil in tax, whereas here in the UK we are talking about just $2. So we should use this opportunity to bring the UK in line with the permanent tax rate of other countries, regardless of the scale of profits

One other change is crucial: preventing this Bill from including the 80% so-called “investment allowance”. That outrageous proposal would, according to the Government’s own factsheet, mean that for every £1 that businesses invest in North sea oil and gas they will

“overall get a 91p tax saving”.

First, let us consider the fact that this relief will come at a huge cost to the taxpayer. Analysis by the New Economics Foundation showed that the investment allowance would 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 laid out in the draft Bill. The E3G think tank estimates that lost revenue from the investment allowance over the next three years could have insulated 2 million homes over the same period, saving households £342 a year, on average. I struggle to believe that anyone thinks that handing money back to oil and gas companies is better than kick-starting the street-by-street nationwide home insultation programme that so many of us have been speaking about at such length this evening.

Secondly, this allowance dangerously undermines our climate targets by actively encouraging new fossil fuel projects. Indeed, up to 39 fossil fuel projects are eligible for this “super-deduction” and could be developed in the next three years. Together, those could emit as much as 899 million tonnes of greenhouse gases, which is more than double the UK’s estimated net emissions in 2020. The International Energy Agency and the Intergovernmental Panel on Climate Change are clear that new fossil fuel developments are simply not compatible with limiting global temperatures to 1.5°. The most recent IPCC report in April was unequivocal that

“further installation of unabated fossil fuel infrastructure will ‘lock in’ GHG emissions and put 1.5°C out of reach”.

It could not be clearer. Alignment with 1.5° is not just some kind of “nice to have” benefit; it is literally critical to avoiding climate catastrophe.

Thirdly, this investment allowance will not help to address domestic energy security, because, as the Treasury team know, 70% of the remaining reserves in the North Sea are oil and are not the kind suitable for use in UK refineries, meaning that we currently export about 80% of it. I therefore urge the Government to reconsider this aspect of the proposal, which is not just bad for the public purse, but potentially disastrous for our planet and will not deliver the benefits that the Government may claim.

To conclude, at the World Economic Forum in Davos, Fatih Birol, the IEA’s executive director, was clear that decision makers should not use

“the current situation as an excuse”

to invest in projects that are incompatible with net zero. I very much hope that the new Chancellor, whoever they may be, will heed that warning and reform this Bill before it comes to Parliament next week.