Energy (Oil and Gas) Profits Levy Bill

Debate between Geraint Davies and Lord Mackinlay of Richborough

Committee stage
Monday 11th July 2022 Commons Chamber

[Craig Mackinlay (South Thanet) (Con)]

I was asked on 26 May by one of the main newspapers what I thought about this proposal of a windfall tax, on the back of what Labour had proposed some time before. I gave this fairly high-octane statement:

“Whichever way you look at it, a 65% tax rate applied to an industry that we need to encourage to help us through our energy policy mess seems topsy-turvy.

Higher taxes can never mean lower prices.”

And this was the statement that caused some alarm and was widely reported:

“All in all, I’m disappointed, embarrassed and appalled that a Conservative Chancellor could come up with this tripe.”

With the change of Chancellor, I had hoped that we would have quietly disposed of the Bill and not progressed to Second Reading. It should sensibly have been scrapped, but although the former Chancellor has gone, the Chief Secretary to the Treasury, my right hon. Friend the Member for Middlesbrough South and East Cleveland (Mr Clarke), is still here and presented the Bill this afternoon. I fully understand public disquiet about the supranormal profits that have been earned by the oil and gas industry over the period. The hon. Member for Ealing North (James Murray), who speaks from the Labour Front Bench, has made those points, which form the backbone of some of Labour’s new clauses.

The comments of various chief executives of the oil and gas industry—calling their profits “cash machines” and all that—were particularly unhelpful; they did not do themselves too many favours. Such companies lost similar amounts of money during covid, when, as we all recall, the gas and oil price completely collapsed. Owing to storage issues, there were a few days when oil was trading at a negative rate, which was rather bizarre; I wish I had had a few barrels to fill at the time.

We already did some rather strange things in years past. Under the Finance (No. 2) Act 2017, we restricted the carry-forward of losses. There is an allowance of £5 million, but the amount of profit that can be relieved with carried-forward losses is restricted to 50% on the rest. We have created a tax regime whereby we are happy to take the profits and tax them, but we are not willing appropriately to relieve the losses, and I am not sure that any of Labour’s new clauses would address that.

I have had discussions with various Front Benchers prior to today. Labour has objected to many parts of the Bill, because in its analysis of life—shadow Ministers have given quite a lot away— anything less than taking 100% of everything is a loss of tax. I am not sure that it was quite what the hon. Member for Ealing North intended to say, but he clearly suggested that that is Labour’s view of tax: it is necessary to take the lot, as anything less is a sort of tax give-back.

[Geraint Davies (Swansea West) (Lab/Co-op)]

The hon. Member may know that over the last few decades, the five biggest oil companies have made $2 trillion of profit, and the profit that they have been making is over the normal operational costs. What we have now, thanks to Putin’s war, is a massive price hike. That windfall profit is literally that—the companies have done nothing to earn it; they have simply stolen money from the pockets of people using transport and filling their cars. Is the hon. Member saying that that theft should simply be kept by the oil companies, which have done nothing other than exploit an illegal war? What sort of statement is that?

[Craig Mackinlay]

The hon. Gentleman has merely clarified what I have been trying to say; yes, of course there were supranormal profits on the back of Ukraine war and coming out of covid, when the entire planet was getting its factories back up and running and life was returning to normal. I had hoped I was making the clear point that there were substantial losses by similar companies in years past. Given the hon. Gentleman’s analysis, I assume that grain wholesalers would face a similar tax from Labour. Semiconductor manufacturers supplying their goods from South Korea would similarly, through artificial means, have earnt good profits at this time. It seems that the Labour party would definitely want to tax everybody on anything that it considered to be an inappropriate amount of profit, whatever that might be.

I have a number of objections to the levy. Labour’s new clauses 7 and 8 go some way to clarifying a little of what I am saying, although I will not support them tonight. Let me turn to the relevant North sea businesses that will be caught by the levy. Since 1 January 2002, we have had the ringfenced corporation tax at 30%—more than our current headline rate of corporation tax. The supplementary charge, which goes on top of that, has been up and down over the years. It commenced on 17 April 2002 and peaked during the coalition period—very relevantly, between 24 March 2011 and 31 December 2014 —at 32%. Of course, the then Department for Business, Innovation and Skills was held by the Liberal Democrats in the coalition, so that gives us a little insight as to what they think of tax: it is generally a high one.

We had a 62% tax during that period, but immediately prior to this legislation the supplementary charge had been down to 10%. We were bobbling along with massive profits and were taking 40% of the total to the Treasury. Whichever way I look at it, I see that as a goodly rate of tax. However, under clause 1, which has just been outlined by the Financial Secretary to the Treasury, my right hon. and learned Friend the Member for South East Cambridgeshire (Lucy Frazer), this new energy profits levy is 25%.

Let me be very clear about my objections: a 65% tax rate is excessive in any tax regime. We are asking the self-same companies to go all out—“Please go all out!”—for more oil and gas in the North sea at this time of energy crisis, energy insecurity and very high prices. Why have they not, thus far, explored those parts of the North sea that we are now asking them to explore? It is because they are more complicated, deeper and more hostile environments. The profits derived from those tougher locations—the higher hanging fruit, rather than the lower hanging fruits—will be less, as the costs are higher.

I am aware of what I perceive as the tax nudge, but I am afraid that it is a little bit like Baldrick’s cunning plan. We are trying to nudge companies—this is about the only good thing about the Bill—by saying, “You make the right investments to get more oil and gas out of the North sea that we desperately need, and we will give you a very substantial tax relief.” And that tax relief is substantial, at 91.25%. I am afraid that the Chief Secretary to the Treasury has let the cat out of the bag; if that is the Baldrick cunning plan, which I can see the benefit of, how can we have estimated £5 billion as the amount of tax to be raised? That cunning plan is not going to work fully; many companies will not take the option of relieving the variety of taxes that are now before them, they will not invest, and we will be taking £5 billion out of the industry.

We are not only asking the companies to undertake new investment in the North sea. We are asking them to undertake some rather fresh thinking and research, with unknown outcomes, on the net zero pathway. I know for a fact that BP is doing a lot of work in this field—its people have been in one of the dining rooms of this House—and good luck to it, but as has been highlighted by the Labour Front Benchers, there is nothing in the Bill that nudges such investment in the net zero field.

“Profit” is not a dirty word. Profits pay our salaries, every salary of every civil servant, and every single pension in this country; they are all on the back of profits. “Profit” is a good word—a word that makes the world turn. Another objection I have to the levy is that the self-same companies, which are earning good profits, are the backbone of many blue chip investments that can be found in practically every pension fund in the land, because they are good dividend payers. Millions of pensioners rely on those dividends—a long and usual flow that can be relied on year in, year out. By the Government taking the extra 25%, those dividend flows will have to be lessened. We cannot take another 25% out of a profit and expect the dividends to flow at the same rate.

Elections Bill

Debate between Geraint Davies and Lord Mackinlay of Richborough

2nd reading
Tuesday 7th September 2021 Commons Chamber

[Craig Mackinlay]

I am grateful to my hon. Friend for that assistance.

The matter was tested at the Court of Appeal in front of no less than the Lord Chief Justice, who ruled in summary that authorisation by the candidate or agent is a key feature of an election expense. The Electoral Commission—I make no comment as to its motivation—was dissatisfied with the outcome at the Court of Appeal and took the case to the Supreme Court, which ruled in an entirely contrary way, that spending could be construed as an election expense without receiving formal authorisation or proper deemed authorisation if it is of assistance to that candidate.

Two of the highest courts in the land—one said this and one said that. How on earth is a candidate or agent meant to make any sense of such legislation? I am extremely grateful to my hon. Friend the Minister for listening to my contributions in the House on this matter and for listening to the private Member’s Bill that I introduced some years ago to amend the 1983 Act appropriately so that proper authorisation has to be given. I now see those words in the Bill almost in their entirety. In clause 16, proposed new section 90C(1A) of the 1983 Act requires clear direction, authorisation or encouragement by the candidate or their agent for an election expense to be so. Thank God we have some clarity.

I would not want to see anybody in this House, friend or foe, go through what I went through. It was not fair, because we had ambiguous legislation. Finally we have a power in this Bill that means we will protect each other for the right reasons. Whether or not we like someone’s politics, it will apply to everybody.

[Geraint Davies]

Is the hon. Gentleman saying it is reasonable for a political party to bus in hundreds of workers and put them in hotels, so long as the agent does not know or authorise it? Is he saying that is a legitimate—