Energy (Oil and Gas) Profits Levy Bill

Lord Teverson Excerpts

2nd reading & 3rd reading
Wednesday 13th July 2022 Lords Chamber

[Lord Teverson (LD)]

My Lords, I congratulate the noble Lord, Lord Sikka, on his forensic analysis of the market. It was quite astounding. He is an accountant, so he has to be right—we know that, in the western world. I thank him for that, and I look forward to the now extended half-an-hour reply from the Minister to his questions.

I have to say that one of the things that I like about the Bill—let us start off with the positive things—is that to some degree it is fiscally responsible. The Government are spending something a mere £37 billion—the Minister will correct me—on trying to solve the crisis in price increases, and here we have a Bill that, while it is not hypothecated, puts some £5 billion estimated back into the Treasury to pay for that. One of the reasons I welcome the Bill is because now, whenever I see a Conservative Party letterhead and that tree that is its logo, I think of it as the magic money tree. That has gone from rhetoric aimed at the Opposition Benches to the Government Benches because of the first round of the Tory leadership competition, where we had absolutely zero fiscal responsibility of any sort whatever. Maybe these are the last vestiges. Maybe the noble Lord, Lord Moynihan, will be rewarded by the fact that, if one of those now remaining eight candidates —or six or whatever it is—get in, this will probably disappear due to low tax and high spend. It will be interesting to see.

My noble friend Lady Kramer is absolutely right. At the end of the day, the core of this is the fact that households are having to pay huge amounts of extra money for their energy, and it is a real challenge to them. I quoted this figure in Grand Committee yesterday in a debate on an SI. Looking at myself, my standing order to Octopus Energy at the beginning of the year was £212 a month; this month, I paid £355. That is a huge increase, and one which I am fortunate enough to be able to afford—although even I blinked. However, to many of the households in this country, not least the 3.5 million households that were in fuel poverty before these prices even rose at all, it will be a huge challenge.

One of the sad things about that £37 billion that is going into trying to solve this crisis in the short term is that it is money just to stand still. There is no investment in there in energy efficiency or putting our housing stock right—all those challenges that we need to meet. It is just money that is coming through the Treasury and, importantly, out to households again. However, if these high energy prices continue, that will not have solved that problem one little bit.

When the noble Baroness, Lady Bennett, mentioned Scott Morrison, it was like a voice from the past. I thought I had forgotten that name forever, and I wish that I had. I hope that Anthony Albanese, who has now taken over, will now very much change the southern hemisphere’s look at climate change.

I come back to Norway, which seems to have dominated this debate to a degree. The great thing about Norway, of course, is that it has a sovereign wealth fund, one of the largest in the globe, which is invested internationally and well, and is a great asset, whereas we in the United Kingdom have no sovereign wealth fund whatever, despite having depleted those resources in the North Sea. I am not pointing the finger at anybody or at any particular party, but one of the tragedies is that we have not used that ability to invest in our future.

No doubt this is a tilt back to the carbon economy rather than the clean economy—one of energy efficiency led by renewables. I would like to ask the Minister a question. I read through what was allowed or not for investment—the noble Baroness will excuse me if I did not read it sufficiently well—and I wanted to understand whether investment in new fields in the North Sea was allowed. Would it include that, depending on how long this levy lasts for, or is it just around—I say “just” carefully—greater extraction from existing resources?

I would also like to ask the same question that the noble Lord, Lord Sikka, did. Although I understand that this £5 billion is a net figure after the investment incentive, I would be very interested indeed to understand whether that is the case or what the Government are forecasting with regard to the take-up of that investment.

On a minor point—I do not want to take the House’s time up on it hugely—it seemed to me when I read through the Bill that it took up a huge amount of space to make sure that nothing recycled was used. I can sort of understand all that, but it does not say a lot about the circular economy to a degree. I would hugely prefer recycling rather than new equipment, but maybe that is a small thing.

This industry is moving towards carbon capture and storage, which is perhaps more beneficial—I am slightly sceptical about CCS, but the Climate Change Committee tells us that it is a key part of meeting net zero. Is investment in carbon capture and storage included in this?

Contracts for difference were mentioned by someone—was it the noble Lord, Lord Moynihan? Sorry, it was the noble Baroness, Lady Bennett. Sorry I mixed the two up—their views and speeches are so similar. Where we have contracts for difference, this problem of excess profits is solved. The Treasury, through the contracts company, is doing very well at the moment, because the strike price on contracts for difference is well below the current wholesale or reference price for electricity. If we have those sorts of mechanisms—introduced by a Liberal Democrat Secretary of State for Energy and Climate Change—we solve these things automatically. I think there are ideas to apply that to the traditional power sector as well, which would indeed be interesting.

As my noble friend said, we see ourselves—no doubt, along with others in the House—as progenitors of this legislation, to which the Government were very late to the table, but we are at the crossroads, a fork, in energy policy. There are the siren sounds of, “Hang on a minute. Let’s take the route back to fossil fuels to put this right. Guys, it’s only temporary; we’ll invest in new fields, but we will still be in transition.” There is a real danger here. We have seen that in the leadership contest for the government party at the other end of the Corridor, during which this issue has not been seen as sufficiently important by candidates and their campaigns. We really are at a fork.

Lastly, I put a challenge to the Minister. Just to make sure I am wrong, can she confirm that the Government will not approve the coal mine in Cumbria?

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, the investment allowance has been carefully designed to ensure that it incentivises investment but does not provide relief for investment that would have taken place otherwise.

I will pick up on a couple of further points from the noble Lord, Lord Teverson, who had a few questions. To clarify, the allowance does apply to new as well as existing fields. It will not apply to carbon capture, usage and storage, as it applies only to upstream activities, and carbon capture, usage and storage is not an upstream activity. However, it would apply to the decarbonisation of those upstream activities. I hope that makes sense.

On energy storage, the Government published an energy security strategy in April to increase domestic energy production and accelerate the move away from gas towards low-carbon energies such as nuclear, renewables and hydrogen. It builds on delivery over the past decade, including giving the go-ahead to the first nuclear power plant in a generation and a fivefold increase in renewables. The Government will ensure a more flexible, efficient system for both generators and users by encouraging all forms of flexibility, with sufficient large-scale, long-duration electricity storage, to balance the overall system by developing an appropriate policy to enable investment by 2024.

The noble Lord, Lord Tunnicliffe, asked about the £400 energy discount and whether that may apply to second homes. The Government’s intention is for the Energy Bills Support Scheme to reach as many households as possible from October, while minimising the administrative complexity of the scheme. We consulted on the basis of delivering the £400 via domestic electricity meter points. While he is right that some households have second homes or multiple meter points, it will be important to balance this against the timely and efficient delivery of the scheme. I know noble Lords have expressed concern about the targeting of the support that the Government will provide. I just say that, in contrast to calls from other Benches—for example, around a different route, which could be to reduce VAT—the flat-rate payment provides a better targeted level of support to those households that are most vulnerable. I think that is something that we should support.

The noble Baroness, Lady Kramer, asked for reassurance that the proceeds of the levy will go towards support with the rising costs of living. As her noble friend said, the support announced this year is worth £37 billion. Our estimate for the first year of the levy is around £5 billion. While there is not a direct ring-fence, it was announced at the same time as the additional measures in May, which were about £12 billion of that £37 billion. The extra support that the Government are giving people actually outweighs the revenue being raised from this levy. The distributional analysis published alongside the May package shows that it was highly progressive, and around three-quarters of total support will go to vulnerable households. As noble Lords will also know, we made it clear at that point that next April’s uprating of benefits will use the normal September CPI—as we expect that level of inflation to be higher than it will be the following April—to account for ongoing high energy costs for those households on the lowest incomes.

The noble Baroness, Lady Kramer, the noble Lords, Lord Tunnicliffe and Lord Teverson, and others asked about energy efficiency. I talked about the £37 billion of cost of living support, and I reassure noble Lords that the Government are spending £6.7 billion in this Parliament to improve energy efficiency and decarbonise heat in buildings. Over the next three years, the Government are investing a further £1.8 billion on low-income household energy efficiency, on top of the £1.2 billion spent since 2020. This will improve around 500,000 homes, saving households on average £270 a year on their energy bills long term, at current energy prices.

Some £471 million has been spent to date on the social housing decarbonisation fund and sustainable warmth programme, estimated to save households an average of £350 to £450 a year on their energy bills. We are also consulting on expanding the energy company obligation to £1 billion per year for improvements to fuel-poor households. The Government agree with noble Lords about the importance of improving energy efficiency, as well as providing immediate support to households with the cost of living.

I cannot answer the question from the noble Lord, Lord Teverson, on the coal mine in Cumbria, or all the questions from the noble Lord, Lord Sikka, but maybe I will write to them both and copy in all noble Lords so that they get satisfaction on those points.

[Lord Teverson (LD)]

I was slightly mischievous in asking the question, because clearly the Minister will not be able to write and give me the answer, although I would like her to. The Government have clearly put off this decision yet again, and I just think it would be a really good sign if they made up their mind and did the right thing. Perhaps they could make that decision, at least before we have regime change.