Finance Bill

James Murray Excerpts

Committee of the whole House
Tuesday 10th December 2024 Commons Chamber

[The Exchequer Secretary to the Treasury (James Murray)]

At the Budget in October, the Chancellor set out the decisions that we are taking to restore economic stability, put the public finances on a firm footing, and embed fiscal responsibility in the work of Government. Having wiped the slate clean of the mess we inherited, our Government can now focus on boosting the public and private investment that is essential for sustainable long-term growth. It is through sustainable economic growth across the UK that we will create wealth and provide security, making people across the country better off.

That goal of raising living standards in every part of the UK so that working people have more money in their pocket is at the heart of the Government’s plan for change that the Prime Minister set out last week. That plan also set out the Government’s commitment to securing home-grown energy, and to protecting bill payers by putting us on track to secure at least 95% clean power by 2030. Making the transition to home-grown energy has required us to take immediate action to unblock investment, including deciding to reverse the de facto ban on onshore wind. The Government have their part to play, alongside the private sector, in making sure that investment happens on the scale and at the pace that we need. That is why the clauses that we are debating are so important—they are a key mechanism for raising the funding that is needed for that investment to be delivered.

We are taking a responsible approach that recognises the role of businesses and their employees in the energy industries of today and tomorrow. Since we formed a Government, my colleagues and I have been working closely with the sector affected by the energy profits levy to make sure that the transition is managed in a way that supports jobs in existing and future industries. Our approach recognises that oil and gas will have a role to play in the energy mix for many years to come, during the transition, and it balances that with ensuring that oil and gas help to raise the revenue that we need to drive investment towards the energy transition. Our legislation delivers that approach, and I welcome the chance to set out the details of how it does so.

The clauses that we are debating concern the energy profits levy, a temporary additional tax on profits from oil and gas exploration and production in the UK and on the UK continental shelf. The levy was introduced by the previous Government in response to the extraordinary profits being made by oil and gas companies—and, it is fair to say, in response to substantial political pressure from Labour Members.

[Harriet Cross (Gordon and Buchan) (Con)]

Does the Minister believe that oil and gas companies are still making extraordinary profits?

[James Murray]

I believe that it is fair that the oil and gas industry makes a reasonable contribution to the energy transition. We need to ensure that during the transition from oil and gas, which will play a key role in our energy mix for years to come, the industry contributes to the new, clean energy of the future. The way to have a responsible, managed transition is to work with the industry and make sure that it makes a fair contribution, but to not shy away from making that transition at the scale and pace needed.

[Sammy Wilson (East Antrim) (DUP)]

Let me try to understand the Minister’s logic. First, he recognises that we will need oil and gas. Secondly, he is going to tax oil and gas companies. Thirdly, he is telling them that his Government are creating an environment in which there is no future for oil and gas, but he still expects them to invest. Where is the logic?

--- Later in debate ---

[James Murray]

I am glad that the right hon. Gentleman has given me a chance to set out why the Government plan is the right and balanced approach. We are ensuring that the oil and gas sector is supported in making the contribution that we know it will to our energy mix for many years to come, while asking it to contribute to the transition to clean energy. The oil and gas industry recognises that a transition to clean energy is under way. It wants to support investment and jobs in the industry but also to contribute to the transition. Taking a fair and balanced approach is the right way to protect the jobs and industries of today and tomorrow and, crucially, to protect bill payers, giving them permanently lower bills and greater energy independence. [Interruption.]

[Tristan Osborne (Chatham and Aylesford) (Lab)]

In the last financial year, the oil and gas industry made £6.1 billion in profit, despite the chuntering from Opposition Members. Does my hon. Friend agree that the Conservatives introduced the energy levy? We are simply ensuring that our oil and gas sector pays an equivalent sum, so that we can transition to a green energy future. This money is necessary for that transition to occur.

[James Murray]

My hon. Friend is absolutely right that we are asking oil and gas companies to make a fair and reasonable contribution towards our transition to clean energy. That transition is under way, and it is important for oil and gas companies to make a contribution, but that should happen in a way that protects the jobs and industries of today and tomorrow.

[Wera Hobhouse (Bath) (LD)]

The oil and gas giants were making eye-watering profits when the Conservative Government finally introduced a levy, although it had a loophole that let the oil and gas companies off the hook. The Government should support the Liberal Democrat amendment, which demonstrates how much of a missed opportunity that was, and how much money we could have raised, had the loophole been closed earlier.

[James Murray]

I am not entirely clear that that is what the Liberal Democrat amendment does. We have been clear that our intention is to end unjustifiably generous allowances. That is exactly what we are doing by abolishing the core investment allowance, which was unique to oil and gas taxation and is not available to any other sector in the economy.

[Perran Moon (Camborne and Redruth) (Lab)]

New research published in the last few days has found that fossil fuel companies reported profits of nearly $0.5 trillion during the 2022 energy crisis. By contrast, people struggled with fuel poverty and had to choose between heating and eating. One in seven households in my constituency is in fuel poverty. Does the Minister agree that the ability to extend and increase the energy profits levy is a key lever for addressing this imbalance and supporting households?

[The Chairman]

Order. That was neatly done, but interventions have to be very closely related to what we are debating here and now.

[James Murray]

I hope that my hon. Friend’s constituents will benefit from lower bills as a result of the investment that we are ensuring, by the public and private sectors, in the clean energy sources of the future.

We knew, when the Conservatives introduced the energy profits levy, that the extraordinary oil and gas profits were driven by global circumstances, including resurgent demand after covid-19, and the Russian invasion of Ukraine. Households in the UK, however, were particularly badly hit by higher oil and gas prices, as the Government at the time had failed to invest adequately in energy independence, or in measures such as home insulation. When the energy profits levy was introduced, an 80% investment allowance was also introduced, and this was later reduced to 29% when the levy rate increased from 25% to 35% in January 2023. An 80% decarbonisation investment allowance was later put in place for decarbonisation expenditure, which is money spent on the reduction of emissions from the production of oil and gas. The levy was initially set at 25%, but the previous Government increased it to 35% and extended it beyond 2025, first to 2028, and later to 2029.

As I mentioned, the Government recognise the continued role for oil and gas in the UK’s energy mix during the energy transition. We are committed to managing the transition in a way that supports jobs in existing and future industries, recognising that our offshore workers have the vital skills to unlock the clean industries of the future. I put on record my thanks to the offshore workers I met in Aberdeen in August for giving me some of their time and their views when I was there for a meeting with Offshore Energies UK and representatives of the sector. As I mentioned, it is essential that we drive both public and private investment in the transition to clean energy. Clause 15 therefore increases the energy profits levy by three percentage point—from 35% to 38%—from 1 November 2024. The clause also sets out the rules for apportioning profits for accounting periods that straddle the start date. As I have made clear, the money raised by these changes will help to support the transition to clean energy, enhancing our energy security and providing sustainable jobs for the future.

Clause 16 concerns allowances in the levy. The clause removes the 29% core investment allowance for general expenditure incurred on or after 1 November 2024, as I mentioned to the hon. Member for Bath (Wera Hobhouse). The Government have been clear about our intention to end unjustifiably generous allowances, and that is exactly what we are doing by abolishing the core investment allowance. We are bringing the level of relief for investment in the sector broadly in line with the level of capital allowances available to other companies operating across the rest of the economy through full expensing, which we have committed to maintaining. The energy profit levy’s decarbonisation allowance will be retained to support the sector in reducing emissions.

Qualifying expenditure includes money spent on electrification of production, or on reducing venting and flaring. The retention of the decarbonisation allowance reflects the Government’s commitment to facilitating cleaner home-grown energy. However, in the light of the increase to the levy, clause 16 also reduces the rate of the decarbonisation allowance to 66% in order to maintain the same cash value of the tax relief per £100 of investment.

Clause 17 extends the sunset of the levy by one year from 31 March 2029 to 31 March 2030. To provide the oil and gas industry with long-term certainty and confidence in the fiscal regime, we are retaining the levy’s price floor, the energy security investment mechanism.

[Dave Doogan]

Certainty is only good if it relates to a positive outlook, not a negative outlook. The hon. Member for Gordon and Buchan (Harriet Cross) asked a clear question about the duration. It was not about whether the sector pays fair taxes; we all believe that people should pay fair taxes. Does the Minister still believe that the industry is making extraordinary profits?

[James Murray]

I would like to explain to the hon. Gentleman how the energy security investment mechanism works, because that, to be fair, was put in place by the previous Government, and we are maintaining it. It says that if prices drop below a certain threshold for six months, the energy profits levy ceases early. That gives some certainty and predictability to the oil and gas sector. If prices go below that level, the sector can have confidence that the energy security investment mechanism will end the levy early. If that does not happen, the levy will continue, as we have said, until March 2030.

I am keen—I will set out a few more details later—to engage with the oil and gas sector on the regime post the energy profits levy, because it is important for oil and gas companies making decisions about investment to have certainty about what will happen up until March 2030, and to understand what the regime might be like thereafter. That is why I am looking forward to my conversations with the sector on what the post energy profits levy regime will look like.

Long-term certainty and confidence is being provided to the oil and gas sector by our retention of the levy’s price floor, the energy security investment mechanism, which I was explaining to the hon. Member for Angus and Perthshire Glens (Dave Doogan). It means that the levy will cease permanently if oil and gas prices fall below a set level for a sustained period. Furthermore, as I also just said, to provide stability for the long term, the Government will publish a consultation in early 2025 on how the tax regime will respond to price shocks once the energy profits levy comes to an end. That will give oil and gas producers and their investors predictability and certainty on the future of the fiscal regime, which will support their ability to continue investing, while also ensuring that the nation receives a fair return at a time of exceptional crisis.

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[James Murray]

I thank hon. Members for their contributions to the debate. I will respond to some of the points raised, and set out the Government’s views on the new clauses. The Opposition spokesperson, the hon. Member for Grantham and Bourne (Gareth Davies), asked for confirmation of our decision to retain the energy security investment mechanism. I hope that he will take yes for an answer, because yes, I can confirm that the ESIM will remain in effect until 31 March 2030, when the energy profits levy is due to end. It will continue to be adjusted in line with consumer prices index inflation in future financial years. I hope that sets his mind at rest on that point.

The hon. Gentleman asked about modelling the impact of the energy profits levy. I am sure that he will remember from his time in the Treasury the role that the Office for Budget Responsibility plays. He will see that in the report that it published alongside the Budget, it forecast £12.6 billion being raised from the levy over the forecast period. Of course, the OBR will provide updated forecasts next year.

The hon. Gentleman and other hon. Members kept raising the phrase “extraordinary profits” when talking about trying to understand the position that the oil and gas sector is in. That links directly to the energy security investment mechanism, because prices remain higher than the price floor that we set. The energy security investment mechanism means that if prices fall sufficiently and return to historically normal levels, the levy will be disapplied. The relationship between the levy, profits and the maintenance of the energy security investment mechanism is key to understanding the Government’s approach.

The Liberal Democrats spokesperson, the hon. Member for St Albans (Daisy Cooper), asked about our choosing a 78% rate, how we set the rate for the energy profits levy, and about other attributes of the system being set up by the clauses under debate. We seek to achieve a balanced approach. We are raising the rate to 78%, extending the levy for a further year and removing the investment allowance, which we deem to be unjustifiably generous; yet we are maintaining 100% first-year allowances, the decarbonisation allowance, and the energy security investment mechanism. That strikes the right balance between ensuring that oil and gas companies continue to invest in oil and gas for years to come, and ensuring that they contribute to and support the transition to clean energy.

The hon. Member for Angus and Perthshire Glens (Dave Doogan) spoke about the need for long-term stability. I entirely agree that we need it. That is precisely what we seek to achieve by saying that the energy profits levy will come to an end in March 2030, by having a price floor in the ESIM—we have mentioned that several times—and by proceeding with our consultation on the post energy profits levy regime. That will give confidence to those thinking about investing in the oil and gas sector not just before the end of the energy profits levy, but post 2030.

The right hon. Member for East Antrim (Sammy Wilson) also mentioned long-term stability. He seems distracted right now, but I hope that will be of some reassurance to him. The hon. Member for Angus and Perthshire Glens said that a £78 investment relief is available in Norway, whereas the figure is £46 in the UK. I want to put on record that in the UK, while the energy profits levy remains in place, the sector continues to benefit from an £84.25 relief for every £100 of investment. I hope that gives him some reassurance on the points that he raised.

I thank my hon. Friend the Member for Earley and Woodley (Yuan Yang) for her thoughtful and informed contribution, which explained that our approach strikes the right balance. I must say, however, that I was disappointed by the contribution from the hon. Member for Waveney Valley (Adrian Ramsay), because he seemed not to support our moves to ensure that tax is not a blocker to CCUS, which will play an essential role in our progress towards net zero. The UK has a chance to be a world leader in that sector; I hoped that he would support our efforts to ensure that it is.

Two new clauses were tabled, which hon. Members spoke about. They require reports to be published. I can remember tabling many such new clauses over the last few years. New clause 2, tabled by the hon. Member for St Albans, would require the Government to produce a report setting out the fiscal impact of the removal of the energy profits levy investment allowance and the change to the decarbonisation investment allowance rate. New clause 3, tabled by the right hon. Member for Central Devon (Mel Stride), would require the Government to produce a report on the expected impact of the levy changes in a number of areas, including on capital expenditure in the UK oil and gas industry and on the Scottish economy.

The Government oppose new clauses 2 and 3 on the basis that they are unnecessary. We have already set out the impact of our measures in a tax information and impact note, which was published at the time of the Budget. That note states that the changes made to the energy profits levy will raise an additional £2.3 billion over the scorecard, and further data on the UK oil and gas industry is regularly published on gov.uk.

I hope that I have addressed some of the points raised by hon. Members, and have reassured them that the new clauses are not necessary. I urge the House to let clauses 15 to 18 and schedule 3 stand part of the Bill, and to reject new clauses 2 and 3.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.

Clauses 16 to 18 ordered to stand part of the Bill.

Schedule 3 agreed to.

New Clause 2

Report on fiscal effects: relief for investment expenditure

“The Chancellor of the Exchequer must, within six months of the passing of this Act, lay before Parliament a report setting out the impact of the measures contained in clause 16 of this Act on tax revenue.” —(Daisy Cooper.)

This new clause would require the Government to produce a report setting out the fiscal impact of the Bill’s changes to the Energy Profits Levy investment expenditure relief.

Brought up, and read the First time.

Question put, the clause be read a Second time.