Energy (Oil and Gas) Profits Levy Bill — House of Lords, 2022-07-13
Topic: Energy
Prem Sikka (Labour, Centre-left): My Lords, it is good to see the Minister advancing and defending a policy that the Government so vehemently rejected not so long ago. The Bill is not what it seems to be. A large chunk of the £5 billion that may be raised is to be handed back to the oil and gas companies through the 80% investment allowance. The Explanatory Notes do not say how much that would be; there is no information. Neither is there any requirement that the gas and oil produced with that investment should be used in the UK—after all, we are short of energy. Companies can claim the investment allowance on assets that they do not legally own. In other words, they can claim it on leased assets. I can tell noble Lords, having worked in the oil industry as an accountant, that accountants would be very busy concocting transactions so they can claim this £91 in every £100 for the allowance The Government’s treatment of renewables is absolutely lamentable. At the moment, for every £100 of investment, renewables receive £25 in various reliefs. In 2023, that goes down to £4.50. Of course, if the Government think that this 80% investment allowance is so good that it will stimulate additional investment, why not extend it to all the other sectors too and see whether it achieves that? Of course, it will not The Government are handing billions to the oil industry. The real reason for that is that it has given vast donations to the Conservative Party: some £1.5 million since 2019, and this is its pay-off The 25% levy, or the windfall tax, is actually low. The companies are collecting extraordinary profits without making extraordinary effort or taking additional risks. In my writing, long before the Government or any other political party came around to it, I called for a 90% windfall tax—Greenpeace talked about 70%—which would have generated a lot of money for insulating homes and putting solar panels on every single public building. The 25% windfall tax is simply a gesture by the Government to manage public opinion. It will not really have much impact on oil and gas companies, which have highly diversified income streams. Only about 5% of BP’s consolidated production is based in the UK. The 25% levy will account for less than 2% of its earnings before interest, taxes, depreciation and amortization—in accounting circles, the acronym for that is EBITDA, in case anybody is wondering about that particular expression. This small 2% charge will hardly worry any major oil producer, especially BP. In the first quarter it had profits of $6.2 billion, and it handed over $4 billion to shareholders in the last 12 months. BP reported an average refinery profit margin of $18.90 per barrel during the first quarter of 2022. That is nearly three times the $6.70 per barrel margin reported in 2020. This windfall tax will hardly make a dent in that kind of profiteering. BP has now paid tax on North Sea operations for the first time in the last six years because the Government have showered that industry with all kinds of relief, and that is the result. It has now paid $127 million in tax on profits of $12.8 billion. It will hardly be affected by this levy that the Government are telling us about Only about 3% of the consolidated production of Shell is in the UK. Its share of the windfall tax, in terms of impact on EBITDA, is barely 1.5%—hardly worth worrying about. The Government are just making a gesture. Shell tripled its profits to $9.1 billion in the first quarter of 2022 and has just completed an $8.5 billion share buyback programme. It is awash with cash; its refining profit margin rose in the second quarter of this year to $28 per barrel, from $10.23 a barrel in the first quarter and $4.17 a year earlier. That is seven times more profit from refining, and the Government are hardly making any dent in it. Shell has paid no corporation tax on its oil and gas production in the North Sea for the fourth consecutive year In the broader context, the yield from the windfall tax is too low, and a vast amount of it is being handed back to the same industry. No questions are being asked about how these oil and gas companies have managed to dodge taxes. There is no investigation into the transfer pricing and profit-shifting techniques used by these companies to dodge UK taxes or any review of the government policies permitting them. In 2019, the UK collected $1.72 in tax per oil barrel; in contrast, Norway collected $21.35 per barrel. Yet the UK Government are mounting no investigation into why they are giving away vast revenues Oil and gas companies are also rigging the market. They not only produce but buy, sell and speculate on gas and oil that they have produced themselves. BP alone employs more than 3,000 traders to do exactly that; this speculation has generated $2.3 billion of profit. There is absolutely no transparency about it or any disclosure of the accounts. No accounting standard or government department demands it, so these companies are buying and selling products which they produce, speculating and pushing up the price. That should really be looked at There is profiteering at all stages of the entire circuit of producing and selling oil, gas, petrol and electricity, but no windfall tax on all stages. Between June 2021 and June 2022, the refiners’ margins on petrol increased by 366% and margins on diesel increased by 648%. Why is there no windfall tax on the refiners On 8 July, the Competition and Markets Authority said: "Increase in ‘refining spread’ added 24p a litre to fuel over the last year" and: "The ‘refining spread’ tripled in the last year, growing from 10p to nearly 35p per litre." That is a massive amount of profiteering, yet there are absolutely no checks on it. The RAC and other motoring organisations tell us that major retailers are incredibly slow to pass on falling wholesale costs, yet very quick to pass on rising ones. Again, the Government have done nothing about this, thinking that these organisations will somehow regulate themselves. They have got used to picking our pockets and are carrying on doing so, with the Government’s help. There is profiteering by banks, supermarkets, electricity generators, water and other companies; why are there no windfall taxes on them but a tax on oil and gas companies operating from the North Sea? I hope the Minister can answer these questions The Minister will also have noticed that Spain is now levying a windfall tax on banks and utilities to provide free train travel to help people and alleviate pressure on energy demand and petrol prices. Why do the Government not do the same?