“Liz Truss’ first act as PM is to oppose a windfall tax on the oil and gas giants making £170bn in excess profits. Instead, she wants the British people to foot the entire bill for her energy package.”
That’s what the shadow business secretary Ed Miliband tweeted last week.
The government is freezing the energy cap at its current level, rather than allowing it to rise in October as planned. Your total bill depends on your energy use, but the typical home can now expect to pay £2,500 a year from next month – around £1,000 less than previously expected.
We don’t yet know how much it will cost the public purse, but the Institute for Fiscal Studies says the bill could “easily” reach £100bn this year alone, “with more to come” in the second year of the policy (for context, the pandemic furlough scheme cost £70bn).
Liz Truss’ administration plans to pay for it by borrowing more money – rather than cutting spending or raising taxes – and adding to the national debt.
Against this backdrop, Mr Miliband’s post has been shared thousands of times on social media.
But it’s missing important context.
The £170bn excess profits figure is disputed
It looks like the claim that “oil and gas giants” are “making £170bn in excess profits” comes from a Bloomberg story published in August.
According to the story, the Treasury privately expects UK energy producers could make up to £170bn more over the next two years than they would have, had Russia not invaded Ukraine and driven up international gas prices.
But Bloomberg also reports that “the Treasury said it did not recognise the figures”.
And we can’t independently verify the number either.
Indeed, the day after his tweet, Mr Miliband acknowledged in Parliament that the figure is not confirmed. He told the Commons: “I gather that there is a dispute about the figure of £170 billion in excess profits. […] If it is not £170 billion – we have it on good authority that it is – the estimates should be published so that we can all see them for ourselves.”
There’s already a windfall tax
Reading Mr Miliband’s tweet, you’d be forgiven for thinking that oil and gas producers are not currently subject to a windfall tax.
In fact, Boris Johnson’s government introduced one in May this year. And it taxes energy producers’ profits at a higher rate, 25 per cent, than Labour had proposed at the time: 10 per cent.
(Though, to be fair to the opposition, its plan was first announced in January, when we did not yet know how significant the rise in gas prices would be. It has since made more stringent proposals, which we’ll look at later in this article.)
With the current regime in place, profits on North Sea oil and gas are now taxed at 65 per cent.
And while it’s true that Liz Truss has publicly expressed her opposition in principle to windfall taxes, she does intend to keep the existing levy in place.
Labour’s plan would cover a fraction of the cost of energy bill support
Where the new Prime Minister and Labour disagree is on whether to expand the existing windfall tax to help pay for the government’s energy support. The opposition party wants to back-date the levy to January, and to remove the tax break on companies’ investment spending.
If Labour’s proposals were enacted, extending the windfall tax would bring in £8bn, according to the party’s own estimates. That would cover a fraction of the £100bn required to fund the government’s energy plan this year.
Who foots ‘the entire bill’?
Mr Miliband writes that instead of a windfall tax (or rather, an expanded windfall tax) on oil and gas producers, Liz Truss “wants the British people to foot the entire bill for her energy package”.
You might think that means oil and gas producers will not be funding any of the government’s energy support package. But those companies pay taxes, including the existing windfall tax, and will continue to do so. The revenues raised by these taxes, alongside personal taxes like income tax paid by ordinary Brits, will contribute to paying off the extra government debt incurred by the latest energy price guarantee.
So, we don’t think it’s fair to say Ms Truss “wants the British people to foot the entire bill”.
The Labour party was contacted for comment.