Unfortunately, it will do this all too literally, by driving up new oil and gas extraction while doing far too little to address the acute poverty that now faces millions. Tom Scott lays bare the shocking truth.
The U-turn in government policy that everyone was expecting finally arrived today, when Chancellor Rishi Sunak announced a package of tax and spending measures supposedly designed to address the cost-of-living crisis (which is really a crisis of extreme poverty and inequality).
As predicted, it included what Sunak shamelessly labelled a ‘temporary targeted levy’ (to avoid using the ‘windfall tax’ term annexed by the opposition) on oil and gas profits, which the Chancellor claimed will raise £5bn. The Labour Party, the Lib Dems and the Greens have all been urging such a tax for months, and Keir Starmer was quick to hail the apparent U-turn as a victory for Labour pressure.
But closer inspection of this tax reveals that it is unlikely to raise anything like as much as he claims, and that it is one of the most environmentally damaging taxes ever introduced by a UK government.
Why? Because Sunak’s energy profit levy enables North Sea oil and gas companies to offset investment in new fossil fuel extraction against their taxable profits. And be in no doubt: this is exactly what they’ll do.
Government ministers have long been excusing their failure to tax the soaring profits of the fossil fuel producers by claiming that to do so would be to reduce the amount of investment that such companies are making in renewables. This was always spurious; despite the claims of companies such as Shell and BP, the renewables investments these companies have been making is tiny as a percentage of their total capital spend. Lack of transparency in their reporting means that it’s hard to get exact figures, but industry analysts put it at around 1 per cent of total capital expenditure for Shell and BP, and much less (often nothing at all) for other companies.
As I argued recently for West Country Voices, there was a simple mechanism already available to capture the grossly excessive profits of the North Sea producers: the so-called supplementary charge. A hike in this charge was how George Osborne raised a windfall tax in 2011-12.
There is a reason why Sunak didn’t use this method: he wanted to introduce a loophole that would allow the fossil fuel producers to avoid paying the new tax. His energy profit levy allows these companies to offset up to 80 per cent of their profits against investment in future production. The supplementary charge also allows investment offsets but not nearly as much, and – crucially – only after profits from such investment are booked.
The overall effect of the new tax will mean, as Sunak told the House of Commons, “doubling investment relief for oil and gas companies. That means that for every pound companies invest, they’ll get back 90 per cent in tax relief.”
So does that mean that these companies will be directing their bumper profits into investments into UK renewables?
Far from it, and here’s the real shocker.
Incredibly, the offsetting of investments against profits by the oil and gas companies will only be allowed under the new scheme for oil and gas investments – not for renewables.
Rishi Sunak didn’t mention this in his announcement today, perhaps because it’s so mind-bogglingly stupid. And it comes just a few months after the UK pledged to accelerate efforts to phase out such subsidies, in the Glasgow Climate Pact agreed at COP26 in November.
There’s no doubt that the fossil fuel interests that donate so generously to the Conservative Party will be delighted by Sunak’s announcement today. They’ve been given the opportunity to minimise their current tax liabilities by ploughing profits back into oil and gas production. And the amount of future tax they will pay on the flow of climate-destroying fuels from their increased capacity will revert to its currently minimal levels as soon as soon as Sunak’s time-limited scheme expires.
Clearly, the £5bn that the government claims this tax will raise is likely to be wildly out. It will, however, allow the companies destroying the world’s climate system to pretend that they are making far more of a contribution to the Treasury than will in fact be the case.
Others have pointed out that Sunak’s package of support measures doesn’t go nearly far enough towards covering the massively higher fuel bills that cash-strapped households are facing, let alone the big rise in prices of food and other essentials. He could have done much more to help, and a loophole-free windfall tax would have enabled him to do so.
Unsurprisingly, Sunak – one of the richest men in the UK – has not listened to the voices of the young Green New Deal activists who spoke truth to power at a Treasury event last week.
He’s listened instead to the fossil fuel lobbyists and delivered to them a smoke-and-mirrors gimmick that can only worsen our ever-shrinking chances of avoiding catastrophic and irreversible climate breakdown.