Draft Investment Allowance and Cluster Area Allowance (Relevant Income: Tariff Receipts) Regulations 2018

Jonathan Reynolds Excerpts

Wednesday 9th January 2019 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a privilege to serve under your chairmanship this morning, Mr Davies. It is, indeed, always good to start the day with a Treasury statutory instrument; the Minister and I could go even further and say that it is a treat to consider one that is not related to Britain’s exit from the European Union, for a change.

As the Minister outlined, the draft regulations relate to a change originally announced in the 2016 Budget: allowing tariff receipts to be included as a relevant income for investment allowances in the oil and gas sector. My only technical question for him is whether that change will be retrospective and, if so, whether there is an estimate of the overall cost to the Exchequer in that regard. It is marked blank in the impact section of the tax information and impact note that the Government published on 23 July 2018. If the figure is zero, perhaps there is a question about why the change is needed at all.

Understandably, the Opposition are supportive of the economic contribution of the oil and gas sector and the jobs and tax revenue that it provides; as the Minister said, it is a major national asset. However, our constituents will be interested to know the Government’s rationale for offering a further tax break to the oil and gas sector at the time of transition to a low-carbon economy and when concerns about climate change are so acute. The Minister will be more than aware that the UN Intergovernmental Panel on Climate Change report published in October 2018 showed that we have just 12 years left to make unprecedented changes to prevent global warming from increasing above 1.5°.

The impact note published by the Government states:

“While the UKCS is a mature basin compared to other prospects, there is still an estimated 20 billion barrels of recoverable oil remaining.

In recent years, the government has taken significant steps to create the right environment for oil and gas producers to maximise economic recovery of the remaining hydrocarbons in the basin. Encouraging investment in key infrastructure is an important aspect of this objective as it can delay decommissioning and support further development in the UKCS.”

Is it really the Government’s intention that those 20 billion barrels would be recovered? If so, what environmental consequences would that entail? How, for instance, does it fit with the emissions reduction pledge 2020, to which the Government have publicly committed? To give the Committee some sort of guide, I point out that 20 billion barrels of oil, if combusted, would release more than 20 times the UK’s entire CO₂ emissions in 2017, and that is before any emissions generated in extracting the oil were taken into account, so clearly that is quite a significant part of Government policy.

People want to know what tax incentives are being promised to the renewable energy sector to encourage further infrastructure development in cleaner technologies. Fiscal policy is intrinsic to driving the transition to a greener, low-carbon economy. This change appears to be a move in the other direction, and I think that people would benefit from hearing from the Minister some of the rationale that lies behind it.