Recommendation 45

The tax system should help, not hinder, the transition to a low-carbon economy. The original way in which the Investment Allowance was structured provided a perverse incentive to accelerate investment in high-carbon oil and gas installations at a time when the public policy imperative was to accelerate the transition away from fossil fuels. We welcome the modest change introduced by the Chancellor to limit the 80% Investment Allowance to investment expenditure on upstream decarbonisation, while having significant reservations about the extent of the financial support the Treasury is providing via the Investment Allowance, which Accelerating the transition from fossil fuels and securing energy supplies 89 the Institute for Fiscal Studies has noted ‘means that North Sea investment will be massively subsidised’ and ‘could lead to loss-making investments being rendered commercial’.