July 11, 2022

Climate groups threatens legal action over “unlawful” consultation period on windfall tax legislation

Pre-Action Letter from climate campaigners threatens legal action over “unlawful” consultation period for Energy Profits Levy Bill 

Thanks to the combined efforts of green campaigners and anti-poverty groups alike, calls for a windfall tax on the profits of energy companies grew too loud for the government to ignore and, on the 26th of May, the Chancellor of the Exchequer announced The Energy Profits Levy – aka windfall tax bill.

Following a formal request to extend the public consultation period of the Energy Profits Levy Bill on the grounds of it being unlawfully short, climate campaigners have sent a pre-action letter to HMRC warning of legal action if the government does not allow more time for scrutiny of the bill. The bill, which was given a meagre five working days for public scrutiny, imposes an additional 25% tax on profits which will be used to partially fund a £15 billion support package for UK households struggling with energy bills. 

Five days of consultation is far too short to adequately scrutinise such a complex and important piece of legislation, which also happens to be riddled with loopholes and limitations designed to keep oil and gas firms happy. Tessa Khan, director of the campaign group Uplit and the Proposed Claimant in the pre-action letter, said, "We’ve had to write this letter laying out the unlawful nature of the short consultation period, because Rishi Sunak ignored our initial extension request to allow for proper scrutiny. This government needs to be held to account for decisions that benefit a handful of companies over the wider public interest.” 

Environmental barristers Estelle Dehon QC and Ruchi Parekh of Cornerstone Barristers are advising Uplift, along with leading environmental solicitor Rowan Smith from law firm Leigh Day.  

“Consultation fulfils a crucial function in improving legislation.” Estelle Dehon (QC) said of the role of parliamentary consultation periods. “There are clear legal principles to ensure a consultation is fair, including that adequate time be given for consideration and response. Against a background where it appears the Government’s intention is for this Bill to pass through Parliament with little to no time for debate or scrutiny, the need for adequate, lawful consultation is all the more acute.” 

Rowan Smith added that, “Given the technical nature of these proposed changes to tax law, which our client is concerned will gift massive subsidies to fossil fuel companies at a time of a climate emergency, it is alleged that the Government was under a legal duty of fairness to allow longer for the consultation. Our client believes that its failure to do so was unlawful. That is why we have written to HMRC on our client’s behalf to request that the consultation period is extended on an urgent basis, as well as reassurances that responses are lawfully taken into account.”

Controversies of the Bill 

One of the more controversial aspects of the Energy Profits Levy Bill is the huge investment allowance for oil and gas companies which is designed to incentivise continued investment in UK oil and gas production. This allowance, effectively a new subsidy for the fossil fuel industry snuck into the windfall tax bill, will cost the public purse approximately £1.9 billion a year according to the New Economics Foundation - fund that would otherwise have been collected through the windfall tax.

The details are concerning: the new Investment Allowance will see oil and gas companies receive overall a 91% tax relief on investments; or as the Institute for Fiscal Studies puts it: investing £100 in the North Sea now will cost companies only £8.75.

Despite the oil and gas industry’s collective gripes over the implementation of any form of windfall tax and amid discussions of legal challenges to the bill, the fact remains that oil companies are set to see huge rewards from the investment relief. Shell’s investment in the recently approved Jackdaw North Sea gas field means it will pay £210 million less in windfall tax.

Another concerning aspect of the bill for climate and anti-fracking campaigners is the very real possibility that, if the moratorium is overturned, the investment loophole could also apply to fracking companies who may be able to claim even more tax relief for each pound invested than offshore oil and gas firms under Rishi Sunak’s plan.

Tessa Khan called out former Chancellor Rishi Sunak for attempting to rush through a huge public giveaway to fossil fuel companies to increase production “when we know North Sea oil and gas won’t lower people’s bills and at a time when these companies are making eye-watering profits. Nothing about the subsidies included in this bill makes sense. It is outrageous that the government is allowing no time for public scrutiny.” 

“The new investment allowance, buried in the windfall tax bill, allows oil companies to hoard profits, money that would otherwise have gone directly to struggling families. Any subsidies should be going towards insulating millions of homes ahead of this winter, not to mega rich oil companies and their investors.” 

A Cold Winter Ahead 

Right now, millions of UK households are struggling to afford to heat their homes. The total estimated number of households currently predicted to be in fuel poverty in the UK is over 6 million, and this is set to rise to 8.5 million by the end of this winter. While everyone should have the right to a warm and comfortable home, fuel poverty is not only an issue of comfort, it is also a major public health concern. People who live in cold houses are at an increased risk of developing asthma, cardio-vascular problems, and catching a serious respiratory infection like covid-19. 

By the government’s own definition, a household is said to be in fuel poverty if they have less than less than £1,495 disposable income left each month after paying gas and electricity bills and if their home is more expensive to heat due to a low energy efficiency rating. 

The UK has the oldest housing stock in Europe meaning residents are living in draughty homes that are much less likely to benefit from modern construction methods such as cavity walls that improve insulation and prevent common issues like damp and mould. 

The windfall tax is urgently needed to help to address the cost of living crisis, but using the new bill to create massive new public subsidies for the very same companies getting rich from high energy prices is wrongheaded. More oil and gas won’t lower household energy bills. Public subsidies should be directed to solutions that benefit the public like insulating our housing and investing in affordable renewable energy.