Less than a fortnight ago, my right hon. Friend the Chancellor set out a series of measures to help British people at what we know is a difficult time. The oil and gas sector is making extraordinary profits, not as a result of recent changes to risk taking, innovation or efficiency, but as the result of surging global commodity prices, driven in part by Russia’s war. The Chancellor reassured the House that the Government
“will make sure that the most vulnerable and the least well off get the support they need, and we will also turn this moment of difficulty into a springboard for economic renewal and growth.”
He also made the point that it
“is possible to both tax extraordinary profits fairly and incentivise investment.”.—[Official Report, 26 May 2022; Vol. 715, c. 449-450.]
That is why we have introduced the energy profits levy—a new 25% surcharge on the extraordinary profits that the oil and gas sector is making. At the same time, the new 80% investment allowance will mean that businesses will get a 91p tax saving for every pound that they invest, providing them with an additional, immediate incentive to invest. That nearly doubles the tax relief available, and means that the more investment a firm makes, the less tax it will pay.
The levy took effect from 26 May this year, and will be legislated for via a Bill to be introduced shortly. It will be phased out when oil and gas prices return to historically more normal levels, with a sunset clause written into the legislation. The levy will raise about £5 billion in revenue over the next year, so that we can help families with the cost of living in the shape of significant, targeted support to millions of the most vulnerable.
I am here to talk about the cost of living crisis, but where are Tory MPs today? On 26 May, the Chancellor announced a welcome U-turn on his party’s opposition to a windfall tax—a policy for which we had been calling since January. At the same time as that handbrake turn, however, he created a tax giveaway for oil and gas producers that undermined that tax. Only this morning, in a statement to shareholders, the head of Serica Energy said that these measures would offset a “large element” of the energy profits levy.
All in all, we calculate that a third or more of any revenue from the new levy might be handed straight back in tax breaks. This cashback policy is typical of the sleight of hand that we have come to expect from this Conservative Government, so can I ask the Minister how much these tax breaks will cost? When will the Government have the courtesy of sharing that analysis with the House? How can the Minister be sure how much this new levy will raise when the Chancellor has added this gigantic get-out clause? Why are the Government incentivising investment in fossil fuels over investment in home-grown renewables, which do not benefit from the tax breaks in this announcement? Have the Government even bothered to check what this means for our country’s net zero target and climate commitments?
It is not just the cashback to oil and gas producers. Can the Minister confirm that someone who owns three homes will receive £1,200 of support for their energy bills —more than a low-income family will get? This incoherent policy package was born from Conservative chaos and also from the Chancellor’s embarrassment and stubbornness. Rather than simply admitting that a windfall tax was the right idea all along, he has introduced one with a great big, costly, gaping hole in the middle of it.
The hon. Lady mentions that Labour has been calling for this levy since January. She will know that January was not the right time to introduce it because we did not know then what the price cap would be. Ofgem estimated that in the week when this announcement was made. She will also know that in January, inflation was not at 9%. The Chancellor has taken this decision carefully, considering the circumstances and not just making policy on the basis of ideology.
I am sure the hon. Lady will know that Labour has made £100 billion of spending commitments, with less than £10 billion fully funded. That would almost double our current borrowing. We Conservative Members are aiming to ensure that we are fiscally responsible with taxpayers’ money.
Let me respond to two other points that the hon. Lady made. First, she will remember that when the policy was announced, we said we had estimated that it would raise £5 billion for the package of measures that we had put forward to support people with the cost of living—as she said, that is what we are talking about today. Secondly, she mentioned the importance of reaching our net zero targets. She will know that the UK, under this Government, has already decarbonised faster than any G7 economy, and that there are many other tax levers for green energy, including the super deduction and research and development tax reliefs. She will know that we are consulting on broadening the emissions trading scheme and that we have committed £1 billion to a carbon capture and storage infrastructure fund, as well as £140 million to the industrial decarbonisation and hydrogen revenue support fund. We are ensuring that we tax extraordinary profits at the same time as protecting those who are struggling with the cost of living.
Two weeks ago, my right hon. Friend the Chancellor announced a package of support that is far more generous than what the Labour party ever proposed. It is focused on the immediate pressures that families are facing up and down the country. It is also funded by the energy profits levy, which focuses on and offers support and relief for future investment. Does my right hon. and learned Friend agree that we need not to only provide support in the immediate term, as the Chancellor demonstrated, but to look to the future energy security needs of the United Kingdom?
My right hon. Friend makes an important point, and that is one reason why we set out the Prime Minister’s energy security strategy recently. My right hon. Friend also makes the important point that our package is more generous to those who are vulnerable. Under our package, the lowest-income households will receive double what Labour was proposing—£1,200, compared with £600. Hard-working families will receive £550 under our proposal compared with the £200 that they would have received under Labour’s proposal.
I welcome the acknowledgement from the Government yet again of the vast wealth that currently lies under the waters of Scotland. Oddly enough, in 2014, it had run out, but there still seems to be an awful lot of wealth to be got from the North sea just now.
Will the Minister explain why the windfall tax was only ever applied to the energy producers? Why was it not applied to other companies that, just through good luck, became mega-rich almost overnight? I am talking about the big multinational tech firms, online retailers and the importers of shoddy, useless personal protective equipment that cost the public billions of pounds. Why are they not facing a windfall tax, at the very least?
If an investment allowance is appropriate, why is it not being restricted to investments in technologies that will reduce the carbon footprint of the North sea? Why is it not being restricted to helping to transform Scotland’s and the UK’s oil production away from carbon-based fuels to other methods? Why is it being used effectively to give an incentive to continue the exploitation of our carbon resources?
The Minister said that the Government expect to get £5 billion from the windfall tax. What would the amount have been if they had not applied the investment allowance? How much are the oil companies saving as a result? The National Audit Office and the Public Accounts Committee have expressed concerns about the lack of reliable detail to show that tax reliefs have had the result intended. How will the Government know that they have? What steps will they take to prevent fraudulent claims?
The hon. Gentleman makes a large number of points. The reason we are taxing this sector is that these are extraordinary profits that have been made not as a result of anything that the companies have done, but because of the price of gas. The Chancellor also said that he would look at electricity generation, because that is riding on the back of gas prices.
On the hon. Gentleman’s point about decarbonisation and the oil and gas sector, I point out that capital allowances will be available for capital expenditure from the oil and gas sector that makes the production of oil and gas less carbon-intensive, which could include electrification.
Ongoing investment in the North sea is vital to the transition to a low-carbon economy and to the creation of long-term jobs in emerging industries such as offshore wind, hydrogen and carbon capture and storage, which are very important in coastal communities such as the one that I represent. Can my right hon. and learned Friend give an assurance that the levy will not imperil that ongoing investment?
The points that my hon. Friend makes are set out in the energy security strategy, because we recognise that the North sea will still be a foundation of our energy security. It is right that we continue to encourage investment in oil and gas as we transition to renewables. My hon. Friend is right that the sector, along with many others, provides important jobs for people in the areas where generation is taking place.
The additional tax breaks given to oil and gas firms mean that the Government are handing billions over to the very companies that are driving up people’s bills and fuelling climate change. That is money that could have been used to insulate 2 million homes, saving each household £340 every year. Are these tax breaks for more fossil fuel producers not the very opposite of what is needed to protect the planet, end our reliance on expensive gas and, crucially, invest in insulation that could get bills down?
With the greatest respect, I think that the hon. Member misunderstands the policy. What we are introducing is a significant tax on the oil and gas sector that will fund the most vulnerable, so it is the firms handing money over, as he puts it, to us. We have said that we recognise that companies should invest, because it is good for jobs, good for investment, good for our competitive industries and good for our energy security for the future. We have recognised that we will give tax reliefs if that investment is made.
Just six short months ago, the UK hosted COP26, and it remains its president—not that we would know that from this appalling policy from this Government. The Glasgow climate pact, which the UK signed, commits to the
“phase-out of inefficient fossil fuel subsidies”,
so can the Financial Secretary explain on what grounds handing an 80% tax break to the dirty, dangerous and outdated energy of the past could possibly be considered efficient, especially when new fossil fuel production will do nothing to help with energy security or affordability? It will simply be sold at global prices on international markets. How is that climate leadership?
The hon. Lady will know that we need to ensure energy security. At the moment, oil and gas account for 50% of our domestic energy. It is important that we transition, but that we transition safely, as well as securing domestic energy security.
The hon. Lady makes a very important point about our leadership at COP. We led the world. We were the first country to introduce net zero targets; many others followed. The Chancellor set out packages to ensure private sector investment and Government support for transitioning, and that is what this Government are doing.
I welcome the fact that the Government have adopted Labour’s policy and introduced a windfall tax on these profits. They have had to be dragged kicking and screaming—[Interruption.] I am sorry; should I give way to the Minister for Energy, Clean Growth and Climate Change?
I am the soul of discretion, Mr Speaker. I feel wounded—deeply wounded!
As I was saying, the Government have had to be dragged kicking and screaming to accept a policy that they previously described as unnecessary and undeliverable. However, I fail to see how it is an efficient use of taxpayers’ money, given that it will incentivise the companies to offset the tax. Would it not have been better to invest the money in insulating homes and ensuring that people’s bills were brought down on a more permanent basis? Would that not have been a much more effective policy?
The hon. Member will know, because I have said it this afternoon, that according to our estimate we will be receiving £5 billion from the oil and gas sector. Given that he mentioned insulation, he may be interested to learn that the Government have committed £3 billion over this Parliament to installing energy-efficiency measures in up to 500,000 homes, saving low-income households hundreds of pounds a year on their bills.
Clearly any additional tax cuts for the oil and gas sector should have been targeted at renewable energy generation rather than further drilling for fossil fuels. The Minister will know that the Government intend to introduce a climate compatibility checkpoint to ensure that all future decisions are in line with our climate change commitments. Can she confirm that if there is an overlap with the ongoing tax break for investment in fossil fuel drilling, it will be checked against the compatibility checkpoint?
The Institute for Fiscal Studies—which, I am sure, understands the policy—has been critical of it, saying that the windfall tax is too generous and that
“It is hard to see why the government should provide such huge tax subsidies and thereby incentivise even economically unviable projects.”
Why are the Government providing incentives for projects of that sort rather than raising the money that would help out desperate families, and help them to feed their children?
This policy confirms that we are seeing more take, take, take from Scotland’s North sea oil and gas. The Government are taking resources and taking money. Norway has the biggest sovereign wealth fund in the world, but Westminster squandered all the income from oil and gas from the North sea. At the very least, will the Government reverse their decision and support the Scottish carbon capture and storage cluster and make it a track 1 cluster, and will they consider matching the Scottish Government’s £500 million just transition fund?
Jeremy Cresswell, the emeritus editor of Energy Voice in the north-east of Scotland, highlighted his concerns that the investment allowances put in place by the UK Government as part of the windfall tax are directly for big oil, as opposed to for big renewables too. Can the Minister clarify an earlier point made in response to my hon. Friend the Member for Glenrothes (Peter Grant)? She said that electrification could be part of the programme: surely it must be part of it.