Energy (Oil and Gas) Profits Levy Bill — House of Lords, 2022-07-13
Topic: Macroeconomics
Joanna Penn (Conservative, Centre-right): I thank all noble Lords for their contributions to this debate. In closing, I will focus on responding as far as possible to the many and varied points raised As I said at the beginning, the global context of high oil and gas prices has driven extraordinary profits for UK oil and gas producers. It is both fiscally prudent and morally right therefore that, through the Bill, we introduce a temporary and targeted levy on these extraordinary profits, which will help fund more cost of living support. At the same time, companies must have ample incentives to continue to invest and the Bill has been tailor-made to account for this. The new 80% investment allowance will provide them with an additional, immediate incentive to invest. This means that, overall, businesses will get a 91p tax saving for every £1 invested Turning to the points raised in today’s debate, the noble Lord, Lord Tunnicliffe, asked about revenue that could have been raised had the levy been in place between January and May this year, and the noble Baronesses, Lady Kramer and Lady Bennett, made similar points. It is not standard for the Government to publish assessments of the fiscal and economic impacts of measures that are not being introduced and it is not clear that doing so in this case would be a beneficial use of public resources. I would also add that since the beginning of the year, three significant things have changed. The situation in Ukraine altered considerably, inflation is considerably higher than previously expected and the Government had concrete information on the indicative levels of the autumn and winter energy price cap, allowing us to design the levy and the related cost of living support to meet the scale of the challenge we faced As for whether an earlier commencement date for the levy was an option, as noble Lords would no doubt expect, the Government carefully considered several options. Indeed, following thought and with time to consider, the levy has a more appropriate tax base. The result is that it is not depressed by historical losses and has an investment incentive that is not only more generous but more effectively targeted at new investment. The Government are also very careful when it comes to the retrospective application of taxes. Although this tax will apply from 26 May—the date it was announced—there needs to be careful consideration whenever the question of retrospection is raised, particularly in relation to tax. The noble Lord, Lord Tunnicliffe, also asked about the Government’s plan to phase out the energy profits levy if oil and gas prices return in future years to historically more normal levels. As the former Chancellor told the Treasury Select Committee, the Government are discussing that with industry. The former Chancellor also mentioned the Brent crude price over the last five or 10 years, which is along the lines of $60 or $70 a barrel. Similarly, companies have communicated to their shareholders what they would consider normal oil prices; they tend to use numbers in the range of $60 or $70, so that gives a sense. The situation is complicated because prices have changed at different rates, with gas, for example, reaching a peak in March. However, as the noble Lord mentioned and other noble Lords noted, there is a sunset clause of just over three years in the legislation as a backstop. If prices come back to the range that the former Chancellor discussed, one might expect the levy to fall away sooner The noble Lord, Lord Tunnicliffe, also mentioned that fossil fuel investment will be subsidised in the tax system at a rate of 20 times the incentives available to renewable energy schemes. Other noble Lords expressed concern around the investment incentives in the Bill and whether these challenge our commitment to net zero. Having an element of independence of oil and gas in our energy system is important, and sourcing gas locally, through the North Sea, makes us less dependent on imports. As set out in the Government’s energy security strategy, the North Sea will still be a foundation of our energy security, so it is right that we continue to encourage investment in oil and gas. Our oil and gas have lower emissions intensity compared to imported liquid natural gas As I noted in my opening speech, in meeting our net-zero target by 2050 we might still use a quarter of the gas that we use now, so to reduce our reliance on imported fossil fuels we must fully utilise our great North Sea reserve. However, that does not in any way contradict our commitment to our net-zero targets. I take issue with the noble Baroness, Lady Bennett, claiming that this Government are in any way climate change denying. The UK has decarbonised its economy further and faster than any other G7—