Energy (Oil and Gas) Profits Levy Bill

Lord Tunnicliffe Excerpts

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

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Penn, for introducing this important Bill. It is legislation that we could and should have debated many months ago, had the then Chancellor, the current Chancellor and the rest of the Cabinet not railed against Labour’s longstanding proposal for a windfall tax on oil and gas profits.

The Labour Front Bench facilitated three votes on this issue in another place, with Conservative MPs voting against the proposal on each occasion. Ministers told us that a windfall tax would be unfair. It is not. The revenue raised will fund vital support for households across the country in the face of spiralling bills. They told us that the energy companies were against it. They were not. Energy bosses were clear that their increased profits had not been expected and would not be missed. They told us that it would stifle investment. It will not. Firms said that plans were already in place and were unlikely to be scaled back in the face of a higher tax burden. When the inevitable U-turn came on 26 May, with the announcement of the creatively named “temporary, targeted, energy profits levy”, we welcomed it—subject to seeing the detail.

The Bill before us creates the legislative underpinning for the levy. We will not oppose it, but that does not mean we fully endorse the Government’s approach. The levy will be charged only from the date of the policy announcement, rather than being backdated to a point where both wholesale prices and company profits began to rise above what would be considered normal.

The Government’s preference was not to apply a tax measure retrospectively, but can the Minister confirm whether the Treasury has calculated how much could have been derived from a levy between January and May 2022? Can she also confirm that the Treasury commencing the levy at an earlier date was indeed an option? Although it is not a fiscal measure, your Lordships will remember that in March, during consideration of the economic crime Bill, the Government introduced rules relating to entities disposed of prior to the Bill’s introduction. This levy can be phased out if and when prices return to normal; otherwise, the Bill contains a sunset of the end of 2025.

In another place, much debate focused on what the Government mean when they talk of normal prices. The Chief Secretary suggested that the Treasury would be looking for parity with the prices seen in 2019 or 2021, rather than the “artificially” low prices of 2020. Can the Minister confirm exactly what figure the Treasury has in mind as a trigger for phasing out the levy? Do the Government believe there is any realistic prospect of those prices being seen before the 2025 sunset, or is the expectation that inflated energy bills are here to stay, at least into the medium term?

The Treasury’s announcement of a windfall tax came alongside the scrapping of its proposals for a “buy now, pay later” loan to households and the introduction of a £400 discount instead. It soon emerged that owners of more than one property will be entitled to multiple reductions. That includes the then Chancellor, Mr Sunak, who said he would donate the extra money to charity. He urged other wealthy people to do the same.

Instead of leaving it to individuals’ discretion, why has the Treasury not performed another U-turn and closed that loophole in this Bill? Do Ministers really believe that it is fair for those who can afford multiple properties to receive more support? The cumulative cost of this decision is likely to be in the region of £200 million. Would that money not have been better spent providing further support for the least well off households beyond that already announced? We are, after all, expecting another significant hike in energy bills from October. That is about real people; it will place household budgets under further pressures at exactly the point at which temperatures start dropping and people fire up their heating.

There are several other issues with the detail of these proposals. This calls into question the Government’s line that their delay in adopting this levy was so that they could work through its practical implications. The decision to include investment relief was not an inherently bad judgement. While we believe that the Government has massively overstated the investment implications of a windfall tax, it does make sense to carry out such an assessment. However, the way that the investment-related tax reliefs have been drawn up is problematic. The super-deduction style of relief will see an astonishing 91p returned to oil and gas producers for every pound that they invest. Much of the revenue raised by the levy will therefore go straight back into oil and gas producers’ pockets, rather than serving the stated purpose of helping consumers with their higher energy bills.

Those tax reliefs mean that, from next April, fossil fuel investment will be subsidised in the tax system at a rate of 20 times the investment available for renewable energy schemes. Much of this investment was going to happen anyway. These schemes have been in the pipeline for years and many firms had already scaled up their ambitions when wholesale prices started to rise and profits grew. This means that the investment tax relief is unlikely to produce any meaningful benefit in terms of future energy supply or energy security. There are also fears that funds could be used for exploratory fracking.

Some analysts believe that as much as £4 billion may be lost to subsidised investment that is happening anyway. Again, does the Minister not think that this could be better spent elsewhere? That £4 billion could provide generous further support for consumers, begin reversing the Government’s neglect of energy storage, or boost the UK’s green energy capabilities. Are these not worthy causes? Doubling our onshore wind capacity by 2030 would power an extra 10 million homes. Insulating 19 million homes over the next decade would slash household bills, while drastically improving the quality of the nation’s housing stock. Further investment in offshore wind, solar power, tidal power and hydrogen could improve our energy supply and help in our fight against climate change. These are the Labour Party’s priorities. They should be the Government’s priorities too.

Instead of helping people through the cost of living crisis, the Treasury has designed a windfall tax which hands money back to the oil and gas giants, incentivising further exploitation of fossil fuels. The British public will be grateful for the limited help that they are receiving with their bills, but they will also see through the Government’s claim that they are on their side. It took too long for the Treasury to act, and there is still much work to be done in the UK if it is to weather this cost of living storm.