Clause 61 introduces legislation to expressly state that no payments can arise under decommissioning relief agreements in relation to the energy profits levy, confirming the Government’s long-standing view. Decommissioning relief agreements, which take the form of decommissioning relief deeds, are contracts entered into between the Treasury and oil and gas companies. They have been in place since 2013. They define and in effect guarantee a minimum level of tax relief that an oil and gas company will receive in relation to its decommissioning expenditure. Companies can claim a payment under a DRD if the amount of tax relief that they receive is less than the defined minimum level. DRDs enable decommissioning security agreements to be made on a net-of-tax basis, freeing up cash for investment.

The energy profits levy was introduced in 2022 by the previous Government, to tax the profits of oil and gas companies following record high oil and gas prices. The calculation of profits subject to the EPL does not allow a deduction for decommissioning expenditure. The Government have always been clear that that cannot be circumvented by making a claim under a DRD.

New clause 12 asks the Chancellor of the exchequer to report on the impact of clause 61 on North sea decommissioning and on employment and capital expenditure in the UK oil and gas industry. The Government oppose the new clause on the basis that clause 61 does not impact on the statutory obligation for oil and gas companies to decommission wells and infrastructure at the end of a field’s life, or on employment, capital expenditure, production, demand or the Scottish economy. This measure simply confirms the Government’s long-standing position that payments cannot be made under a DRD in relation to the energy profits levy.

I therefore commend clause 61 to the Committee, and urge that new clause 12 be rejected.