Autumn Statement 2022

Lord Leigh of Hurley Excerpts

Tuesday 29th November 2022 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I add my congratulations to the noble Baroness, Lady Lea—no relation. She is someone I have admired for many years, in all her writings and output, and she gave a most excellent maiden speech.

I welcome the Autumn Statement, which has helped the UK’s position as fiscally prudent, rescued the pound and helped interest rates—some might say that this is a coded message for 3-0—as we fight the damage caused to our economy by Mr Putin and Covid.

As the chairman of the Finance Bill Sub-Committee, I feel it would not be appropriate to talk here about research and development tax credits, much as I would like to, given that, as the Chancellor has mentioned, there is abuse of the current system. But I hope that the noble Lord, Lord Fox, will be pleased when he sees our report, which I hope will be published in January.

As the final Back-Bench speaker, it is a bit of a struggle to come up with something new, so perhaps I can start with something that was not in the Statement: an increase in capital gains tax rates, which had been rumoured and, I understand, is being discussed by the Labour Party—along with abolishing your Lordships’ House and private schools. The Chancellor listened to real concerns from British entrepreneurs and investors in both public and private companies, who said that an increase in capital gains tax would have been a disaster for SMEs, which, as has just been described to us, are the engine of growth for our economy.

Let me deal with two new issues. The first is the energy profits levy; the noble Lord, Lord Sikka, touched on this but from a different perspective. This will raise an enormous amount of revenue, putting most other measures in the shade, so I am surprised that it has not had more attention. We are talking about £41.6 billion in revenue, of which £7.2 billion is this year. I welcome the tax but have reservations, and I draw your Lordships’ attention to my interests on the register, which include my employment at the finnCap Group, a NomAd advising small oil and gas exploration companies, among many others. It is small independent UK companies that produce 60% of our oil and gas needs, and they may well be driven out of business by this tax as currently proposed.

In a highly competitive UK market, the ability of smaller players to invest in current licences—as well as new licences in the upcoming round—will be severely jeopardised by the formulas in the EPL. Smaller producers are vital to a robust and competitive market, yet lack the resilience and deep pockets of the oil super-majors. As only a teeny fraction of the super-majors’ business is based in the UK, they are largely immune to the effects of the EPL, or any further iteration of it. The effect of the EPL may therefore be to concentrate even more power in their hands—that is, if they choose to stay in the North Sea.

One simple amendment which I gather is being considered in the other place, and which would be relatively straightforward to implement and would avoid triggering the above scenarios, is to impose a proper windfall levy; in other words, one triggered at above windfall prices. For example, if we had a floor of $75 per BBL of oil and 100p per therm of gas, and a windfall tax were applied once prices were above that, that would be a taxation mechanism similar to that offered in other countries in the world, in particular in west Africa, and the industry would understand. Such a mechanism would allow investment to continue flowing into UK energy.

However, the EPL, and any successor iteration, would penalise investment in virtually all price environments. It therefore creates uncertainty about the circumstances in which it could be withdrawn. Indeed, a main driver of capital flight with the EPL is the lack of certainty. Would it be removed if commodity prices suddenly dropped? Can my noble friend the Minister give us some assurances on this? As currently outlined, most UK North Sea players instead believe that the EPL will be imposed as a permanent tax, unrelated to prices, with a deleterious effect on investment, which is of course badly needed in the North Sea.

We know that we need domestic energy security, and there is a risk that the current proposals will lead to a real flight from the UK and a corresponding loss of revenue as decommissioning is brought forward, and it will have a negative environmental impact as gas has to be imported into the country to compensate.

The other area I want to touch on is the taxation of multinational companies, which has also not been mentioned in this debate—and I have listened to every speaker. The Chancellor announced that we will implement the globally agreed G20 OECD inclusive framework pillar 2 in the UK in 2024. The pillar 1 negotiations are still stalled, and it is these which are critical to raising tax from multinationals, particularly those based in the USA. As I have argued in this Chamber before, the digital sales tax is not fit for purpose, but the Government have rejected ideas to tighten it up, and the Autumn Statement specifically said that there will not be an online sales tax. I was pleased to see that pillar 2, which is targeted at UK companies, will include a qualified domestic minimum top-up tax. However, this means that Amazon, Google and so on may pay a tiny bit more tax on their business in the UK, but nothing that will move the dial and, of course, it will mean that the UK groups bear the extra tax and compliance costs of their worldwide income.

We are bringing in the undertaxed profits rule, which is helpful. It is a backstop so will help, and the Government are to be congratulated on confirming that it will be used, but that does not come in until 2025. So we have not really addressed the taxation of, in particular, US groups trading here, and this needs urgent attention and action. I would welcome the opportunity to work with the Government on this. I believe we have turned a corner and that this Autumn Statement is the moment we address our challenges and start to tackle them.