Contribution
I hope that my hon. Friend’s constituents will benefit from lower bills as a result of the investment that we are ensuring, by the public and private sectors, in the clean energy sources of the future.
We knew, when the Conservatives introduced the energy profits levy, that the extraordinary oil and gas profits were driven by global circumstances, including resurgent demand after covid-19, and the Russian invasion of Ukraine. Households in the UK, however, were particularly badly hit by higher oil and gas prices, as the Government at the time had failed to invest adequately in energy independence, or in measures such as home insulation. When the energy profits levy was introduced, an 80% investment allowance was also introduced, and this was later reduced to 29% when the levy rate increased from 25% to 35% in January 2023. An 80% decarbonisation investment allowance was later put in place for decarbonisation expenditure, which is money spent on the reduction of emissions from the production of oil and gas. The levy was initially set at 25%, but the previous Government increased it to 35% and extended it beyond 2025, first to 2028, and later to 2029.
As I mentioned, the Government recognise the continued role for oil and gas in the UK’s energy mix during the energy transition. We are committed to managing the transition in a way that supports jobs in existing and future industries, recognising that our offshore workers have the vital skills to unlock the clean industries of the future. I put on record my thanks to the offshore workers I met in Aberdeen in August for giving me some of their time and their views when I was there for a meeting with Offshore Energies UK and representatives of the sector. As I mentioned, it is essential that we drive both public and private investment in the transition to clean energy. Clause 15 therefore increases the energy profits levy by three percentage point—from 35% to 38%—from 1 November 2024. The clause also sets out the rules for apportioning profits for accounting periods that straddle the start date. As I have made clear, the money raised by these changes will help to support the transition to clean energy, enhancing our energy security and providing sustainable jobs for the future.
Clause 16 concerns allowances in the levy. The clause removes the 29% core investment allowance for general expenditure incurred on or after 1 November 2024, as I mentioned to the hon. Member for Bath (Wera Hobhouse). The Government have been clear about our intention to end unjustifiably generous allowances, and that is exactly what we are doing by abolishing the core investment allowance. We are bringing the level of relief for investment in the sector broadly in line with the level of capital allowances available to other companies operating across the rest of the economy through full expensing, which we have committed to maintaining. The energy profit levy’s decarbonisation allowance will be retained to support the sector in reducing emissions.
Qualifying expenditure includes money spent on electrification of production, or on reducing venting and flaring. The retention of the decarbonisation allowance reflects the Government’s commitment to facilitating cleaner home-grown energy. However, in the light of the increase to the levy, clause 16 also reduces the rate of the decarbonisation allowance to 66% in order to maintain the same cash value of the tax relief per £100 of investment.
Clause 17 extends the sunset of the levy by one year from 31 March 2029 to 31 March 2030. To provide the oil and gas industry with long-term certainty and confidence in the fiscal regime, we are retaining the levy’s price floor, the energy security investment mechanism.