The UK Government's decision to announce a North Sea windfall tax the day after Sue Gray's 'Partygate' report was described as a "grubby way to govern" yesterday.
James Murray (Lab), Shadow Financial Secretary to the Treasury, told parliament that the Energy Profits Levy (EPL) was motivated by a desire to tackle negative headlines rather than the cost of living crisis.
Aberdeen South MP Stephen Flynn (SNP) also criticised the lack of clarity around when the tax will end as the Bill had its second reading at Westminster last night.
Former Chancellor Rishi Sunak (Con) announced the EPL on May 26th, just 24 hours after civil servant Sue Gray published the findings of her probe into lockdown parties at Downing Street.
Define 'normal'
Chief Secretary to the Treasury, Simon Clark (Con), told MPs yesterday that the tax rate on "unexpected, extraordinary profits" of oil and gas producers would rise from 40% to 65% and will remain in place until prices “return to historically more normal levels” or the activation of a sunset clause in 2025.
Mr Flynn repeatedly pressed the minister for clarity on what the government estimates a "normal price" to be, but Mr Clark said the government was not going to tie itself to a specific price level.
"The Bill was undoubtedly hastily written on the back of Sue Gray’s report, as the Minister acknowledged earlier, when he could not even tell us at what price the levy would be removed," Mr Flynn said.
"He talks about a normal price for oil and gas. I do not know what a normal price is for oil and gas; I am the MP for Aberdeen South and I have no idea what a normal price for an oil and gas barrel should be, and I do not think any members on the government benches do. That offers absolutely no certainty to industry, irrespective of what the Government seek to suggest."
'Grubby'
Labour also attacked the timing of the tax, which followed months of Conservative opposition to increasing the UK Continental Shelf tax burden.
Mr Murray told MPs: "It seemed clear that what had finally caused the Conservative leadership to change course and back a windfall tax was not the deafening calls from people across the country for help with their energy bills, nor the blatant unfairness of oil and gas producers’ profits soaring in the middle of a cost of living crisis; rather, it was the need for a different set of headlines in that week’s news.
"That is a grubby way to govern, and it is proof, if further proof were needed, that the Conservatives are not fit to lead our country."
West Aberdeenshire & Kincardine MP Andrew Bowie (Con) hit back, saying: "Labour's windfall tax plan would decapitate the oil and gas industry —which, by the way, Labour does not support—and we would have the taps turned off tomorrow".
Investment 'will increase'
Mr Clark said it was possible to both tax extraordinary profits fairly and to incentivise investment.
He added: "That is why, within the energy profits levy, a new “super-deduction” style relief has been introduced to encourage firms to invest in oil and gas extraction in the UK. We expect that the energy profits levy, with its investment allowance, will lead to an overall increase in investment. Indeed, one oil and gas company has already said that the immediate investment allowance should spark further investment in the North sea.
"The new 80% investment allowance will mean that, overall, businesses will get a 91p tax saving for every £1 they invest, providing them with a clear incentive to do so. This nearly doubles the tax relief available and means that the more investment a firm makes, the less tax it will pay. Unlike Labour’s windfall tax in 1997, this levy both incentivises investment and raises more revenue."
Electricity tax shelved
Meanwhile, shares in power-plant owners jumped yesterday after Downing Street said plans for a windfall tax on electricity generators had been shelved.
Drax shares rose by 6%, Centrica 3.4%, and SSE by 3.1% after a spokesman for Boris Johnson said there were no plans to impose a levy in his remaining time in the job.
Mr Sunak had looked into extending it to the power sector, claiming some generators were making “extraordinary profits”. However, Treasury officials had been confronted with practical difficulties in attempting to pinpoint which companies were and were not making windfall profits.