To ask His Majesty’s Government what plans they have to review the impact of their energy profits levy, given the profits announced by Shell on 2 February.
The energy profits levy was introduced in May 2022 to respond to very high prices that mean that oil and gas companies are benefiting from exceptional profits. In the Autumn Statement, the Government confirmed that the rate of the levy would rise by 10 percentage points to 35%. This brings the combined headline rate for tax for the sector to 75%. The OBR forecasts that the levy alone could raise more than £40 billion over the next five years.
I thank the Minister for her Answer, but it is obvious to us all that gas and oil companies are making obscene profits just when the poor and the old are frightened of turning on their heating because they cannot afford it. I would like the Government to promise to increase the windfall tax on companies such as Shell, BP and others, close the tax loopholes, use the money to speed up insulating Britain—which is a good campaign slogan—and stop their planned hike in energy prices for companies in April. Is that something they will do?
I absolutely agree with the noble Baroness on the importance of protecting consumers, including vulnerable consumers. We have the energy price guarantee and other support for them, for example, through increasing rates of universal credit. I completely agree with her on the need to focus on energy efficiency, but I disagree on her interpretation of the current regime as having “loopholes”. They are about encouraging investment in the sector, which is incredibly important for our energy security and for keeping bills down in the longer term.
My Lords, in the announcement of record profits, BP has said that it is not going to reach the very moderate targets it had for moving towards net zero. The Climate Change Committee is constantly saying that this is not just a government problem but a business problem. What discussions are the Minister and her department going to have with BP to get it back on track?
The Government regularly engage with all sectors on their net-zero targets. When it comes to the oil and gas sectors specifically, the changes that we made at the Autumn Statement increased the level of tax relief for decarbonisation of the production of oil and gas better to incentivise companies to take more action in that area.
My Lords, my union, Unite, has shown that corporate profiteering is responsible for massively fuelling inflation, unlike public sector pay rises, which in my opinion are not inflationary. Powerful corporations such as Shell are creaming in the profits, and everyone can see that it has now become obscene, driving prices ever higher and causing millions to suffer and go hungry. It is not acceptable. Why are the Government so unwilling to rein in corporate profiteering and instead are choosing to punish poorly paid public sector workers?
I just point out to the noble Lord that we have introduced the energy profits levy. That charges tax at a headline rate of 75% on those companies, and we expect to raise up to £80 billion in taxes from the North Sea overall in coming years.
My Lords, I draw attention to my registered interests. The Minister spoke in her reply about the need to encourage investment, so could she look carefully at the disparity between the energy profits levy, which gives very generous investment allowances to oil and gas companies, and the electricity generator levy, which has no investment allowance at all for clean energy generators? The Environmental Audit Committee argued in its report in December for a level playing field. Will the Government act on that recommendation?
The noble Baroness will know that the tax regimes for the two sectors are quite different. Oil and gas already has a specific tax regime that is higher than for electricity generators, which pay normal levels of corporation tax. This levy is on top of that for their profits related to the price for gas, which were unforeseen when they were making their investments. I agree that we need more support for investment in renewables. The Government have committed £30 billion towards our domestic green industrial revolution over the coming years.
My Lords, in the debate on the Finance Bill, I raised the concern about the unintended consequences of the energy profits levy. Now that a little time has elapsed, has the Treasury had the opportunity to assess the impact particularly on independent, smaller oil companies? They have said that they no longer have the certainty and cash flow to make the same investment in the UK as they thought they would do previously, which will lead to an uneconomic and environmentally unfriendly increase in imports of oil and gas.
I can reassure my noble friend that the Government have been engaging with the sector, including independent, smaller oil and gas companies. We have included the investment allowance precisely to try to strike the right balance between funding cost of living support while encouraging investment to improve our energy security. My noble friend is right that we should look at the carbon intensity of production here in the UK versus the carbon intensity of importing gas from elsewhere.
My Lords, between them, Shell and BP have made profits of £55 billion, and over the same period the net yield—that is, the gross yield from the tax minus the allowance for investment—is about £1 billion. Despite the incentives, I have not heard of any increase in planned investment and, as the noble Lord, Lord Deben, pointed out, BP has slashed its emissions targets. Is this the outcome the Government planned, or did they get their sums radically wrong?
I am sure the noble Lord would not want to conflate the global profits of those firms with the profits they have derived from their UK oil and gas production. As I have said, those are subject to a tax of 75%. We expect the combined tax take from North Sea oil to be £80 billion over the coming years. We think it is right that we have the investment allowance. The sector is made up of many different players and supports 117,000 jobs, around a third of which are in Scotland—jobs I would have thought Labour would want to support.
My Lords, the US Inflation Reduction Act offers $216 billion of tax credits to green investments in energy and transport, and the EU will make a similar offering. In contrast, we now have an inexplicable regime, with 91% investment relief for oil and gas companies and zero investment relief for clean power generators. Why is UK green investment being shackled?
I simply cannot agree with the noble Baroness’s interpretation of things. Many renewable electricity generators generate their electricity under contracts for difference, to which that regime does not apply. It applies only to exceptional profits related to the price of gas, and is nothing to do with the cost of investing in renewables. I can agree with the noble Baroness on the importance of investing in renewables, something on which we have a consistent track record. We have the largest wind capacity in Europe, and we are the second-largest deployer globally, behind only China. We have a lot more to do, but we have a strong track record on which to build.
My Lords, in retrospect, would it not have been more sensible to have negotiated with the providers of those resources from the North Sea to our domestic consumers and capped the price? Instead, we have allowed prices to rise, with no underlying rise in the cost of production, to the cost of the consumer. The tax may be coming in, but is it going back out to the people in need? I very much doubt it.
I would like to reassure the noble Baroness on that second point. We have the energy price guarantee in place and specific support going to the most vulnerable households. It is at the forefront of our minds that people have faced a difficult winter and that energy prices will remain elevated for some time. We are also putting support into improved energy efficiency and insulation to help bring down bills.
My Lords, while I welcome the investment the Government are making in renewables, is it not wrong that vulnerable households are paying between 9% and 12% of their electricity bills in green levies? Would it not be more appropriate for the renewables industry to carry this itself or for it to be a charge placed on energy companies or electricity distribution companies?
Renewable levies have helped drive the successful track record I referred to earlier, but we are always conscious of consumers’ bills rising. That is why we have put in the significant support that we have.
My Lords, unlike those of many other countries, the UK version of windfall tax, which the Government like to call the excess profits levy, excludes excess profits made at forecourts, at refineries and through trading, otherwise known as speculation. Can the Minister explain why these exemptions were created?
The profits levy builds on the specific tax regime we have in place for oil and gas production in the UK. Perhaps I can reassure the noble Lord that the 75% headline tax rate applied to the sector is one of the highest among comparable North Sea basins, which include Norway at 78%. Other comparable regimes include the Netherlands at 65% and Denmark at 64%.