Oil and Gas Producers: Windfall Tax
Published date : 01 February, 2022
That we are living presently with a cost of living crisis is surely undeniable. Inflation is at 5.5%, and that is reflected in our food prices and our energy prices. It is exacerbated by a supply chain crisis due to coronavirus and from the twin shotgun holes that the UK Government have blasted in each of their feet through the Brexit that they have stumbled towards.
This motion, I am sorry to say, probably looked great on the desk of a researcher somewhere in this building, or that of a press officer, but it collapses the instant it comes into any kind of contact with reality. The problem we are facing with the cost of living crisis is undeniable. While we have heard many stories about the pressures facing our constituents—we have similar stories we can tell—I am sorry to say that I have not heard anything to
persuade me why a one-off smash and grab on the North sea industry is the best way to deal with this crisis.
In Scotland, we are used to dealing with fuel poverty amidst energy plenty, but the real problem—I am sorry to say it is encapsulated by the motion from the Labour party today—is exacerbated by the short-termism that we have seen in UK energy policy. Some £375 billion has been taken out of the North sea since oil started coming ashore along with gas, but in the years of those peak revenues, the revenues were pumped out by a Conservative Government as quickly as possible to try to close a catastrophic balance of payments gap. That drove sterling up to unsustainable levels, drove out manufacturing jobs and drove 3 million on to the unemployment queues. Unlike Norway, we have been left with nothing tangible to show for it, whether a long-term oil fund for future generations, or an energy company such as Statoil, given that the UK equivalent, Britoil, was privatised early in the 1980s.
Successive UK Governments have lied about the extent of that resource, almost as assiduously as they have mismanaged the public policy that should have been going on around it. We are seeing that repeated in many respects with the failure of the UK Government to press on with the carbon capture project at Peterhead and with the intransigence that we see over electricity grid charges, and once again Scotland and Scottish jobs risk being the casualty of that.
It is perhaps hardly a surprise that trust among SNP Members in the UK Government to do the right thing by the North sea and its massive resources is low. Given our previous experience of windfall taxes and the impact they have had, we certainly have no confidence that a UK Government of any stripe can be trusted to use that windfall wisely. This measure is simply a short-termist one-off that will not tackle the fundamental problems.
Despite what some Members might believe, the finances and economics of the North sea have been precarious over the past few years. We will need oil and gas for years to come as fuel and feedstock as part of a transition. It may not fit the preferred narrative, but it is many of the energy companies operating in the North sea that are investing most heavily in the renewables revolution. To give an example, a couple of weeks ago, there was the announcement of the ScotWind round of investment. That is 25 GW of electrical power from the seabed around Scotland, which has brought £700 million up front for the Scottish Government. It will bring supply chain benefits, and once the projects are under way, there will be an ongoing revenue stream per megawatt-hour of energy generated. That is what can be done with the limited powers that the Scottish Government currently have. Would that we had had similar powers over oil and gas in the ’70s, ’80s and ’90s, we might have something to show for it.
If we are to reduce energy bills, we need to drive energy efficiency and reduce our CO2
emissions, and we need to recognise that the windfall tax will do nothing useful in that regard and will likely do great harm. It will sap confidence. It will destroy jobs in the North sea, and with that it will harm investment and damage the skills base and human capital we will be relying on for the renewables sector.
The UK Government have had a windfall of their own from these higher energy prices. They could use that to reduce consumer bills, cut VAT and restore the universal credit uplift that was so cruelly snatched away, and they could copy the Scottish Government’s £20 child payment. In the long term, they could use that windfall to decarbonise heating and industry, to improve the quality of housing and energy efficiency to reduce bills and, above all, to introduce a progressive tax and benefits system to embed social justice. That will not happen with a Conservative Government who are failing to move far enough and fast enough on energy transition and security. I am sorry to say that it certainly will not happen with a main Opposition who seem to prize headlines from short-term gimmicks over embracing the long-term principles that might actually address the problems of people’s household bills.
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