The Government place additional taxes on the extraction of oil and gas, with companies engaged in the production of oil and gas on the UK continental shelf subject to headline tax rates on their profits that are currently more than double those paid by other businesses. To date, the sector has paid more than £375 billion in production taxes. All taxes are kept under review and any changes are considered and announced by the Chancellor.
My Lords, the primary cost of producing oil, gas and green energy has hardly changed. Only the selling price has, resulting in excessive profits without any additional effort for the companies. A windfall tax is needed to help hard-pressed households. Why are the Government so wedded to their ideology rather than helping the people?
My Lords, the noble Lord is correct to talk about price fluctuations in the sector, of course. In spring 2020, the price of oil crashed to below $20 a barrel. That year saw investment in the sector at an all-time low, so an abrupt tax change would create further uncertainty and potentially undermine significant investment in that sector. However, the Government remain committed to supporting households with the cost of energy and have set out plans to do so.
My Lords, instead of threatening major companies such as Shell and BP, would it not be more sensible and in the interests of UK Ltd to recognise that we need those companies to pioneer work in new areas of supply for fuel and power, particularly hydrogen and areas like it?
My noble friend is right. The North Sea transition deal is a global exemplar of how the Government can work in partnership with the offshore oil and gas industry to achieve a managed energy transition.
My Lords, like the noble Lord, Lord Naseby, and as president of the CBI, we feel that a windfall tax is not efficient, as it puts investments at risk for companies that are key to our transition to net zero. Does the Government agree? Secondly, do they agree that this is absolutely the wrong time for our tax burden to be at its highest level for 70 years? Businesses have suffered so much through the pandemic; will this not stifle what is already a fragile recovery?
My Lords, the Government agree that an abrupt tax change could put investment in this sector at risk. While the overall tax burden is high, we have had to take certain decisions to aid our recovery from the pandemic. We saw the Government put in place so much support during the pandemic, but we need to recover, for example by getting on top of NHS waiting lists.
My Lords, the Minister tells us that the Government are concerned that a windfall tax would deter companies from investment, so let us look at that. The Norwegian Government tax companies at 22% and add 53% for those that operate in the North Sea. We apply 40% tax to profits, but we have massive rebates for investment and for decommissioning, with the result that, over five years, 19 companies that operate in the North Sea have paid no tax at all. The Norwegians have no problem getting corporate investment in the North Sea; why would we have any problem getting corporate investment in the North Sea, if we took some of these unearned profits this year to help poor people with difficulties paying their own energy bills?
My Lords, I want to be absolutely clear that the Government have put in support to help people pay their energy bills—we are spending around £9 billion on that. The noble Lord is right that the UK provides tax relief for decommissioning costs, which is something that we have in common with Norway. Of course, different oil and gas fields are at different levels of maturity and have different costs relating to further extraction, and that is reflected in our approach to the North Sea oil and gas fields that we have in the UK.
My Lords, despite fine words on net zero, it is nigh on impossible to get an accurate picture of the amount of money that oil majors spent on renewables. The little we do know shows that their words pay lip service only. Eni spent less than 2% on investment in renewables, and Shell and BP spent similarly derisory amounts. It really is time to stand up to them: tax their extreme profits and use the money to help people who are having to make desperate choices between heating and eating.
My Lords, I am afraid that the Government do not agree with the approach of the noble Baroness. However, where we do agree is on the essential nature of providing further support to households that are struggling with their fuel bills. That is why we are providing a £150 cash rebate for homes in council tax bands A to D, which is about 80% of all households, and a further £144 million of discretionary funding to councils for those households that would not otherwise qualify for that rebate.
My Lords, if we were really concerned about the cost of energy to poor people in our country, would it not be a good idea to remove the green levies that are adding to their bills? Surely it is naive beyond belief to imagine that we can do without gas and oil in the immediate future. The reason that prices are so high is that we are not able to produce enough of our own gas supplies. That requires investment and surely means not taxing the people who are capable of providing it.
My Lords, my noble friend is right that in the short to medium term we will continue to need oil and gas supplies, and that is why the Government think that it is important that investment continues to be made in our oil fields. But we also need to fund the transition to a net-zero economy, where we move more towards clean and renewable energy in the longer term. That is why we have programmes such as the North Sea transition deal, to do that in a managed and orderly way.
My Lords, let me be absolutely clear: the Labour Party would immediately implement a windfall tax on oil and gas profits. Unlike the Government’s buy now, pay later scheme, our plan would provide a genuine £200 off most household bills, with targeted support of £600 for those who need it. The Chancellor will make his Spring Statement a month from tomorrow, just weeks before the energy price cap is hiked. Will the Government use that occasion to do the right thing and adopt Labour’s proposals?
My Lords, Labour may say that it would impose a windfall tax immediately but under its proposals the support would not then be passed on to consumers immediately; it would take far longer under its plans to get money into people’s pockets. Furthermore, Labour’s plans for a VAT cut would not target support at those who most need it, with some of the wealthiest households saving the most money under the proposals.