Whilst recognising the need for short-term measures to support people with energy bills, Peter Aldous cautions against unintended consequences that could undermine investment in emerging lower carbon industries such as offshore wind, hydrogen production and carbon capture which are vital to the regeneration of towns such as Lowestoft.
Peter Aldous (Waveney) (Con)
This Bill is of particular interest to me, as not only is the cost of living crisis hitting hard in the Waveney constituency, but we need jobs based on the North sea to revitalise the local economy. I should also point out that I chair the British offshore oil and gas industry all-party parliamentary group, as the industry is a significant employer in the Lowestoft and Great Yarmouth area.
It is necessary to balance the need for short-term measures to support people through an unprecedented challenge, caused by covid and exacerbated by Russia’s brutal invasion of Ukraine, against our long-term priority of promoting investment in the UK continental shelf, which will not only revitalise coastal communities but help us achieve our net zero obligations. It is important to point out that the activities taking place on the UK continental shelf are not just the extraction of oil and gas, but those in emerging new lower carbon industries such as offshore wind, hydrogen production and carbon capture, utilisation and storage, all of which are inextricably linked. Any levy on the oil and gas sector, if poorly thought through and poorly drafted, could have a negative impact on investment in those emerging industries, which are so vital to our future.
There is concern that there is a lack of a coherent long-term energy strategy. This Bill, printed on 5 July, in many respects conflicts with the Energy Bill published the very next day. The latter Bill aims to boost the UK’s energy independence and security, attract private investment, reindustrialise the economy and create jobs through clean technologies. What is required is a seamless thread that runs through all aspects of energy policy, from our long-term strategy for producing energy to the need for a major step change in how we insulate our homes and our businesses, right through to the support for those who need it most at the current time. Those latter initiatives should build on policies already in place, such as the energy price cap, the warm home discount and the energy company obligation. We should also look to add to them with support such as the social tariff.
Underpinning this integrated approach should be how we ensure that we fully realise the great opportunity to create exciting, new jobs and how we can best provide people with the necessary skills. In mapping out the strategy with particular regard to this levy, the Government should have in mind the following considerations. The first is the vital importance of not inhibiting investment in decarbonised projects that will create jobs and help us meet our net zero obligations.
Secondly, the Government must have it in mind that investment in energy projects is global and footloose and, if we have an unstable fiscal regime, business will go elsewhere. Thirdly, they must ensure, and not undermine, the security of our energy supply. Fourthly, they should have regard to the negative impact on not just those high-profile oil and gas majors, but the supply chain companies located in many constituencies that are invariably highly innovative small and medium-sized enterprises and are the lifeblood of our local economies. Fifthly, notwithstanding that the Bill contains a sunset clause, there remains some uncertainty on the levy’s timeframe, which I hope the Minister will clarify.
Taking those considerations into account, the amendments and clarification that the Government have made are welcome. They include the exclusion of petroleum revenue tax rebates from the levy, reassurance that capital expenditure on electrification linked to oil and gas is included in the investment allowance, and the inclusion of the aforementioned sunset clause.
That said, more changes would be welcome to reduce the fiscal uncertainty, so I would be grateful if the Government considered the following suggestions.
To support SMEs, they should introduce a small profit allowance to allow companies with small profits to be exempt from the levy. That would assist small companies that have been investing for many years. They accumulated significant losses when oil and gas prices were low and are now making only marginal profits.
There should also be support for decarbonisation schemes to ensure that projects such as the electrification of oil and gas production facilities benefit from the capital allowance. A regular review mechanism should be included to ensure that the levy is delivering on its aims and is not having any unintended consequences. There is also a need for regular ongoing dialogue with the industry and the sector’s investors.
I understand why the Bill is being introduced—we are in unprecedented and deeply troubling times—but I am mindful that unintended consequences could undermine much-needed inward investment into the UK, particularly along the North sea coast, which is vital to the regeneration of towns such as Lowestoft. I therefore urge the Government to do all they can to address those concerns, and I hope that the Minister will do that in her summing up.