Away from the Westminster drama over which Tory MP will replace Boris Johnson, the cost-of-living emergency faced by communities up and down the country is biting ever harder. Experts are now warning that the energy price cap will surge by another 64% in October to over £3,200 a year. The cap will have risen by an eye-watering £2,000 in just a few months. With millions of people set to be thrown even further into crisis, we urgently need further government interventions.
In May, after political pressure from our party, the government was forced into imposing a windfall tax on the North Sea oil and gas excess profits. Such a tax is certainly needed. The government’s own figures suggest that North Sea oil and gas companies will make pre-tax profits of £21.4bn in 2022-23. That is a staggering increase from the £2.5bn per year made on average in the past five years.
The windfall tax temporarily raises tax rates on North Sea oil and gas companies by 25% on top of the normal tax rate taking it to 65%. It is expected to raise an additional £5bn in this financial year to support families through the cost-of-living crisis. But it still leaves the North Sea oil and gas company pocketing vast sums in profits that are way beyond the levels they had anticipated.
These excess-profits are not the result of extra investment or innovation – but are an undeserved and unexpected windfall, mainly resulting from Russia’s horrific war on Ukraine. The vast super-profits have been made on the backs of higher bills for ordinary people. So, we have a clear choice: either allow the gas and oil giants to hoard these excess profits, or use these funds to help bail out the vast majority of people hit hard by soaring energy bills.
Today, parliament will be passing the legislation needed to enact the windfall tax. I have brought an amendment, that the tax be set at 45% on top of normal tax rates – and not at the current proposed of an 25% additional rate. This would mean the total tax rate on oil companies would be 85%.
The aim of this amendment is to ensure that nearly all of the windfall goes into supporting families instead of boosting the profits of oil and gas companies. Even with this higher tax, the North Sea oil and gas company revenues have risen so much that they would still make £3bn in profits this year, which is above their recent average.
More importantly, my proposal would raise another £4bn in tax revenues this year alone. This could provide an extra £1,000 payment to the most vulnerable four million households. Surely that is more important than boosting oil and gas company profits?
I am also calling for the current windfall tax to be made permanent and to be brought in line with international averages tax rates. The UK’s normal tax rates on offshore oil and gas producers, at just 40%, are some of the lowest in the world and way below the global average rate of 70%. Norway, another North Sea oil and gas producing nation, for example, has a regular tax rate of 78% on its production – almost double our levels.
Such a higher standard rate in the UK could help fund a real energy transition including a huge home energy efficiency retrofit programme to cut energy use, permanently lower energy bills and protect families against future energy shocks as well as tackling one of the biggest sources of carbon emissions.
We also need action against a major loophole in the Tory proposal, which allows North Sea oil and gas companies to avoid much of the windfall tax through a major tax relief on new investments that gives a 91p tax saving for every £1 they invest. This is an effective subsidy that not only lowers the amounts of financial support available to help families with bills but will encourage greater investment in fossil fuels at a time when we need to be putting an end to all new oil and gas production as part of the greater efforts needed to avoid climate catastrophe.
Labour’s win on the the windfall tax was an important step, but the amounts raised by the government remain inadequate for the scale of the crisis we face. With another huge spike in energy prices now expected, much more needs to be done. The government should start by accepting my amendment and ensuring that instead of profits going to oil and gas firms, they go to bailing out people facing the biggest crisis in living memory.