Revenue cap tilting the field towards fossil fuels

Ed Miliband has accused the government of creating a “preposterous loophole” for oil and gas companies by not extending tax reliefs, which they enjoy from the energy profits levy, to the new revenue cap on low-carbon generators.

During the debate on Monday night (17 October) on the Energy Prices Bill, which the government is rushing through Parliament this week, the shadow secretary of state for climate change and net zero expressed concern that the ‘cost-plus revenue limit’ proposed in the legislation contains no investment allowances.

Oil and gas companies by contrast can recoup up to the 91% of payments under the Energy Profits Levy, which was introduced earlier this year by former chancellor of the exchequer Rishi Sunak, on investment in North Sea production.

Urging MPs to eliminate what he described as a “preposterous loophole”, Miliband said: “That is an absurd tilting of the playing field towards fossil fuels and against investments in cheap, home-grown, clean power, and that is absolutely indefensible. It will not reduce bills.

“The government, having resisted a windfall tax tooth and nail, have now taken the broadest and most ill-defined powers imaginable. Companies and the public have no idea from the bill about the size of the levy, how much it will raise and how there will be fairness with the fossil fuel windfall tax.”

The shadow energy secretary also contrasted the attack by Liz Truss on Labour during last week’s prime minister’s question time for only promising a six-month energy price freeze with Monday’s announcement by her new chancellor Jeremy Hunt that the Energy Price Guarantee will be brought to an early end in April.

He said: “Never mind a vision; never mind a plan for the years ahead; this government cannot even give us a plan for the coming week. They are truly in office but not in power. This matters because families and businesses need to be able to plan.”

And Miliband said the revenue cap, which is being introduced via the bill, is just a tax under another name.

Pointing to the bill’s explanatory notes, which state that the cap is designed to raise money from generators currently receiving “supernormal revenues” to help cut consumers’ electricity costs, Miliband said: “It sounds like a windfall tax. It works like a windfall tax. It talks like a windfall tax. It is a windfall tax.”

When campaigning to become Conservative leader, Truss opposed new taxes.

During the previous debate on his emergency economic update, Hunt said he is not in principle against increased taxes on energy companies’ windfall profits and that they are not “off the table”.

Responding to a question from former energy and climate change secretary of state Sir Ed Davey, the chancellor said: “I am not against the principle of taxing profits that are genuine windfalls, but as he will know well, the energy industry is very cyclical and there are businesses that have periods of feast and famine.

“We have to be very careful that we do not tax companies in a way that drives away investment. We have said that nothing is off the table.”

Backbench MP John Penrose warned during the Energy Price Bill debate that non-time limited powers, which the government is taking under the legislation to alter supply licences and regulation, will undermine investment in the energy industry.

The veteran energy price cap campaigner said: “It means that nobody will be willing to invest in our energy industry if there is a continuing risk that the rules of the game are likely to be changed and the goalposts of the industry moved on a political whim.

“I struggle to think of a measure that will be welcomed more by socialists on the opposition benches. It will give them carte blanche, without having to do anything in Parliament, to renationalise anything they like in any future Parliament, unless we trim these powers substantially and impose a significant sunset clause on them.”

Energy minister Graham Stuart also said during the debate that community owned wind farms will be exempt from the cap.