Briefing: The Energy Profits Levy

On the 26th May 2022, the Chancellor, Rishi Sunak, announced a new tax on the profits of oil and gas companies operating in the UK and the UK Continental Shelf.

At 25%, the so-called 'Energy Profits Levy' is positioned as similar to the Windfall Tax that the Liberal Democrats first called for on October the 24th of last year.

Great news, right? The Conservatives bowed to our pressure, recognising that we had won the argument?

Well.

Not all is as it seems.

Rather, the Levy finances the increased production and dependence on fossil fuels.

Christine Jardine MP, our Treasury spokesperson, said:

"This is more a levy lite than a windfall tax. The Chancellor could have raised double the cash from oil and gas companies if he had the bottle."

In this Green Liberal Democrat Briefing, we will cover all you need to know about today's 'Energy Profits Levy'.

'A Generous Allowance'

The HM Treasury Technical Notes say the quiet part out loud, proclaiming a 'generous allowance which will reward those companies who invest in oil and gas production.'

The Levy promises businesses a 91p tax saving for every £1 of capital, operating, and leasing expenditure denoted as investment, designed to promote energy security through oil and gas production.

We know, and the Conservatives know, that the only route to energy security is through investment in renewables. Not by increasing our dependence on fluctuating markets that are directly responsible for the cost-of-living crisis.

The Government has regularly paid lip-service to reforming our approach to energy, describing a 40% cut in gas usage by 2030 whilst increasing our stock of renewable production. But this emphasis betrays their intentions - the conservation of a status quo that is catastrophic for both bill payers and planet.

'Inefficient Fossil Fuel Subsidies'.

The Glasgow Agreement signed at COP26, heralded by Conservatives as a product of British intervention, pledged to phase-out 'inefficient' subsidies for fossil fuels.

Over the last five years, the value of UK support to fossil fuels amounted to an average of £12 billion a year. The 'super deduction' represents yet another in a string of incentives to drill and burn more.

We signed our nation to the Glasgow Agreement and claimed it as our own. Until November, the UK Government retains the Presidency of COP26. It is our role to lead, to provide guidance for our global community. Today, the Conservatives abdicated that responsibility.

The Cost of Delay.

Not only is this Windfall Tax too little, it is too late.

The Liberal Democrats first called for a Windfall Tax in October of last year.

Ed Davey first proposed the Tax in October of last year. Since then, our MPs have continually raised the concept in the House, in response to spiking energy bills.

Every Liberal Democrat MP voted in favour of a Windfall Tax last week.

Over 300 Conservative MPs were whipped to vote against the Motion. A week later, when Sue Gray's report is spilling tales of misdeeds in Downing Street, the landscape seems to have changed.

The money will land in bank accounts in two portions, in July and Autumn. For communities facing the most significant cost-of-living crisis in living memory, we need immediate support.

The Liberal Democrats have called for an overnight cut of VAT to 17.5%, saving households £600 on average. In turn, given the impact of inflation facing so many working families, a VAT cut will help to keep inflation lower.

When the Government last cut VAT in December 2008, inflation fell from 4.1% to 3.1%. A similar decrease today would cut inflation from 7.8% to 5.9%. The energy price cap rise projected for this October will represent a 14% inflation rate for the poorest tenth of UK households.

The cash payment to households does nothing to address the underlying issue - costs are too high, and wages too low.

Handing a bucket to someone trapped on a leaking boat will only briefly keep them from going under.

We need to reform our approach to energy, subsidise production that cuts costs and carbon, and introduce targeted support that addresses the cost-of-living crisis whilst ensuring that profiteers pay their fair share.