My guess is that the Chancellor of the Exchequer doesn’t yet know whether the 23 March Spring Statement will include proposals for a windfall profits tax on North Sea oil and gas producers. However, with growing concerns that energy price inflation is being exacerbated by profiteering, a view reinforced by the statement of the chief executive officer of BP that the company is a ‘cash machine’, a windfall tax looks more likely. Labour have suggested that a 10 per cent increase in corporation tax for North Sea oil and gas producers would generate £1.2bn. Although oil and gas companies already pay a higher rate of corporation tax than other companies in the UK, further taxing the fossil fuel industry might be a more appealing option than taxing UK households.
Many government figures have argued against a windfall tax on the basis that it would deter investment in the North Sea and therefore impair UK energy security. That is patently wrong. Once extracted from the North Sea, oil and gas will be traded on global markets: additional North Sea production would do nothing to secure energy supplies for UK households and businesses. It would however guarantee increased CO2 emissions, which is the last thing the world needs given the climate emergency.
While prolonging the lives of existing nuclear power stations might help reduce the UK’s dependence on imported gas, the rapid creation of additional renewable energy capacity is key. Onshore and offshore wind are the most efficient, followed by solar. These renewable sources are much quicker to construct and bring online than equivalent amounts of nuclear generating capacity.
Would additional tax incentives for renewable energy make a difference? Perhaps, but campaigners are quick to point out that it would be preferable to scrap the tax incentives for fossil fuel production. What might the Chancellor do on 23 March to support the rapid creation of new renewable energy, so reducing the UK’s exposure to devastating increases in global fossil fuel prices?
There are two clear possibilities. Both relate to planning permission.
First, make it easier for renewable energy companies to work with local communities to install local solar and onshore wind capacity. Onshore wind farms were the subject of a government moratorium in 2015. As George Bernard Shaw said, ‘Those who cannot change their minds cannot change anything’. Surely the time has come to lift that moratorium.
Second, introduce planning relaxations to assist the connection of utility-scale wind and solar installations to the grid.
The Chancellor’s critics observe that, while he has been effective in responding to many of the challenges which have arisen during turbulent times, it is not clear whether he has a clear tax strategy for the longer term. On 24 February 2022, the Chancellor delivered the annual Mais lecture at Bayes Business School in which he challenged his critics.
While firmly believing in lower taxes, the Chancellor disputes the notion that tax cuts always pay for themselves. ‘They do not’, he said. It is difficult to cut taxes at a time when demands on the state are growing. The Chancellor committed to delivering a lower-tax economy, but in a responsible way which tackles the country’s long-term challenges. Higher taxes may be with us for some time to come. As Mr Sunak develops a business tax strategy for the years ahead, a priority will be to cut taxes on business investment. He will also analyse the apprenticeship levy to make sure it is doing enough to incentivise businesses to invest in the right kinds of training.
The bottom line is clear: the Chancellor believes that it is not credible to grow the economy with public spending or supposedly self-funding tax cuts. The Government will use the tax and regulatory levers at its disposal to foster a new culture of enterprise that will create our future economy. Drawing on lessons from history, tax-cutting will not begin until the deficit is under control.