Yesterday the chancellor, Rishi Sunak, announced a package of measures to help with the cost of living crisis. The hotly-anticipated and much needed package ended up being yet another short-sighted sticking plaster for fuel poverty, and a catastrophe for the climate.
The measures will only provide temporary relief on energy bills, do nothing to provide solutions or improve the UK’s leaky homes and encourage oil and gas companies to drill more. Here’s why….
What is a windfall?
Since Russia invaded Ukraine, the global price of oil and gas spiked dramatically. Using data from leading industry analysts, we have calculated that the wartime jump in global energy prices will lead to a projected increase in profits in 2022 alone from extracting UK oil and gas of 111%. These huge profits for producers are completely unplanned and unaccounted-for – this is what’s known as a windfall. As a result of the war in Ukraine alone, the UK oil and gas industry is likely to generate an estimated £11.6 billion in extra ‘windfall’ profit. Not only are these companies profiting from the climate crisis, horrifically they are now also profiting from war.
So where has all this extra money come from? You! While producers rake in these enormous windfall profits due to soaring prices, this means consumers (you and me) have seen energy bills rise to unmanageable levels. Along with other environmental and fuel poverty groups, we campaigned for the government to step in and tax the fossil fuel companies fairly to take that money off household bills and invest in solutions which would reduce energy bills for good.
What should the chancellor have done?
The UK currently has the lowest government tax take in the world from an offshore oil and gas regime at 40%. We campaigned for Rishi Sunak to seize the moment and go beyond just the windfall, taxing all producer profits at 70% – the global average. If he had decided to increase the tax level to 70%, that would have brought in an extra £13.4 billion.
That £13.4 billion of extra taxes could directly relieve energy poverty in the UK and cover the entire investment required for energy efficiency this Parliament:
- £7.9 billion could go directly towards covering the additional energy bill costs since October 2021 for the six million households experiencing fuel poverty, covering the bill rises between October 2021 and April 2023.
- £5.2 billion could go towards fulfilling the Conservative manifesto commitment to funding energy efficiency through existing schemes (Home Upgrade Grant and Social Housing Decarbonisation Scheme) and providing a new grant, available to all households, to insulate homes.
- The remaining £0.3 billion could either cover energy bill rises if more than predicted, or contribute towards supporting a market mechanism to accelerate the transition away from gas heating and boost heat pump installation.
This would have helped ensure future energy resilience through reducing our dependence on fossil fuels.
What the chancellor chose to do
The chancellor announced a package of measures to help with the cost of living crisis, including grant payments for energy bills and increases to benefits. Obviously it’s good that there was some recognition of the cost-of-living crisis facing many households. However, I won’t go into all the measures here, but will instead look at what the chancellor decided to do in relation to the fossil fuel companies, which are largely responsible for this crisis – lets not forget, Putin’s army is funded largely through fossil fuel sales (40% of Kremlin’s federal reserves are funded by oil and gas), despite spiking prices fossil fuel companies did absolutely nothing to protect consumers and oh yes, fossil fuels are polluting our world and driving the climate emergency. This was a golden opportunity to accelerate our transition away from the dirty, dangerous energy of the past and into a cleaner, greener, cheaper renewable energy future.
So the chancellor did eventually decide to impose a windfall tax on fossil fuel profits at an extra 25%, taking it up to 65%. This will take £5 billion away from their £11.6 billion windfall. So there’s your headline, but of course the devil is in the detail, and it really is. While announcing a windfall tax, the chancellor has also chosen to give these fossil fuel companies a 80% tax break for new fossil fuel investment, giving an overall saving of 91p for every £1 invested.
This nearly doubles the tax relief available to fossil fuel giants, meaning the more investment they make, the less tax they pay. The chancellor has chosen to turbo-charge climate destruction. This isn’t just a bad move, it is completely unjustifiable.
What this means
New fossil fuel production will do nothing to help with energy supply or security, as new fossil fuel projects take on average 28 years to produce energy, which will then be sold on the global market to the highest bidder, so given the size of the market does nothing to help bring down energy bills. The International Energy Agency has been clear, there can be no investment in developing new oil and gas fields not already under development before the end of 2021 if we are to meet the objectives of the Paris Agreement in order to keep global temperature rise within 1.5 degrees.
Instead of driving money into clean energy solutions, the chancellor has chosen to pour fuel all over the climate crisis.
The best – and fastest – way to bring down household energy bills is to stop wasting so much energy. The UK has some of the oldest, most drafty housing in Europe; people are paying for energy which is literally going straight out of the window or through the roof. Investment in reducing energy wastage through insulation or double glazing, would both save people money and create jobs.
Less than 24 hours after the support package was launched, economists are already saying that similar measures will be needed next year. Rather than a knee jerk sticking-plaster response, real investment in green homes could stop us from lurching from crisis to crisis, helping people out of fuel poverty for good. It could also create 138,000 new jobs and inject £9.8 billion into the economy.
Renewable energy is now by far the cheapest form of energy available, and the quickest to produce. While giving huge (potentially windfall-canceling) tax breaks to fossil fuel companies for new investment, the chancellor has given no such incentive for investment in renewable energy. This isn’t just short-sighted, it’s a calculated move against progress.
In the chancellor’s announcement he claimed to not want to ‘burden future generations’. There will be no bigger burden on future generations than the disruption and distress from climate change. His words and his actions clearly do not match up.
