Oil and gas levy tax relief ‘could insulate 2m homes’

The potential revenue that the government has surrendered by offering higher rates of relief to oil and gas companies could have been used to insulate two million homes instead, thinktank E3G has claimed.

Chancellor of the exchequer Rishi Sunak unveiled the new relief alongside the government’s new energy profits levy last week.

He said companies could recoup 91p in every pound ploughed into gas and oil projects, nearly doubling the investment relief on offer to the industry, which was previously set at a rate of 46p.

The higher rate of relief would enable companies that embark on such investments to sidestep the new levy, which has been set at a rate of 65% on all UK gas and oil production profits.

In a new analysis, E3G calculates that the additional tax relief will cost the Treasury £5.7 billion over three years, based on the £12.4 billion investment the industry expects to see in the UK continental shelf during this period.

E3G says this lost revenue could instead have been used to upgrade the energy efficiency of 2 million British homes over the same period with an average bill saving of £342 per household every year.

Euan Graham, senior researcher at E3G, said: “New tax relief on oil and gas investment gives companies handouts for undermining our climate safety. The government could have used this “lost revenue” to supercharge an energy efficiency drive that brings household bills down once and for all. Instead, it pushes for profits to be spent on new oil and gas projects. This is the opposite of what’s needed if we want to end our reliance on expensive gas.”

The E3G analysis has been published on the same day that a new Tony Blair Institute for Government report outlines proposals for a ten-year programme of home retrofits, which it estimates could deliver up to £140 billion worth of savings by 2035 if gas prices remain at their current high levels.

The report says the government has “so far failed” to respond to the scale of the energy challenge facing the UK and that its recently published Energy Security Strategy “talked big on long-term ambitions” for offshore wind and nuclear but “spurned the opportunity” to reduce demand.

The institute proposes that the government should establish an independent one-stop-shop Home Energy Service, combining advice, grants, and interest-free loans.

As part of this, the government should ensure all households are provided with ‘simple, practical’ plans for reducing their bills and decarbonising their homes by 2035.

Grants should be made available to cover a portion of upfront retrofit costs, or the entire sum for poorer households and social tenants.

The report proposes the grants should be paid direct to the installer and knocked off the retrofit’s price to minimise hassle and risk for consumers.

Interest-free loans should be automatically available to cover remaining upfront costs, it says.

The institute’s report assumes that grants would start at £5,000 per heat pump and 30% of capital cost for insulation, falling to £3,000 and 10% by 2029 as supply chain efficiencies deliver cheaper prices.

These grants and 0% interest loans would cost the Treasury £1.5 billion per year initially, rising to a peak of around £6 billion per year in 2028 before falling, the report estimates. This adds up to a total cost of roughly £39 billion over 10 years.

The authors, who include Daniel Newport, the government’s former head of heat and buildings strategy, calculate that reduced demand will generate total fuel bill savings of up to £140 billion if gas prices remain at the levels they are projected to hit in October. These savings fall to £47 billion if gas prices fall back to 2020 levels.