North Sea oil wells should be taxed more heavily, as should natural gas production. Energy companies are making record profits from the sale of hydrocarbons which lie in the deep waters around Britain and which should put the industry to shame as the people paying the highest price are the most poor in society.
It should put them to shame to voluntarily part with some of the gains, especially when the price of oil and gas is dictated by global markets which are currently largely influenced by the conflict in Ukraine. They are not super-profits attributable to the ingenuity of their staff or the foresight of business leaders.
It is true that the economic recovery after the end of the worst of Covid-19 has played a role, creating a mismatch between supply and demand. But Russian aggression and necessary Western sanctions against Moscow produced the exceptionally high prices we see today, and the longer the conflict in Eastern Europe continues, the higher prices will remain.
Illustrating the industry’s role for investors, BP announced last week that its profits in the first three months of the year had more than doubled to $6.2bn (£5bn). It is the highest quarterly profit since oil shortages last pushed up prices in global markets after the financial crash of 2008. Shell, the other major oil producer listed on the stock exchange of London, also made windfall profits. The record $9.1bn (£7.3bn) generated in the first three months of the year beat the $6.3bn in the last quarter of 2021 and the $3.2bn dollars from the first quarter of last year.
BP chief executive Bernard Looney blurted out last November, when Brent crude hit $85 a barrel, that the company was “a slot machine at these kinds of prices.” Its financial director mentioned in February after Brent surged above $105 a barrel: “It is certainly possible that we will get more money than we know what to do with.” Looney, whose salary is almost doubled last year at £4.5 million, he was later asked which investment projects he would cancel if a windfall tax was imposed on the company’s profits. None, he replied.
The windfall tax proposals, backed by Labour, the Liberal Democrats and the Greens, have become irresistible as, layer by layer, industry’s attackers have torn down its lines of defence. Oil industry supporters said a windfall tax would be seen as an attack on all businesses, which would live in fear of a similar move. Yet no one has suggested a windfall tax on other industries. On the contrary, big companies in other sectors want a tax on oil companies. John Allan, the chairman of Tesco, said last week that a surcharge on oil companies was needed as the country faced “true food poverty for the first time in a generation”.
It has been suggested that a tax on BP and Shell would hit ‘widows and orphans’ who depend on dividend income. Then it was revealed that UK pension funds held less than 0.2% of Shell and BP shares. Of the total market value of shares listed in the UK, UK pension funds represent only 2.4%. A broader measure of indirect ownership through investment funds only adds another 6%.
Rishi Sunak’s latest stand against those calling for a windfall tax is to repeat the oil majors’ threat that it will stifle investment. Looney, going back to his earlier comments, said a £18 billion investment plan accounted for 15 to 20% of the group’s overall capital expenditure, compared to 10 to 15% that BP historically deployed in the United Kingdom. Still, relatively small sums are being directed to renewable projects and company bosses can’t deny their comments from last year that the company is a slot machine and has more money than it needs. knows what to do with it.
Under the Labor Party’s proposal, companies such as Port energy, the largest oil and gas producer in the North Sea, and London-listed Serica Energy, which is responsible for around 5% of UK gas production, would be hit by a tax that was in course at the time of the budget statement in March to raise around £2bn, but could rise to £3bn today. BP is said to contribute around £250million, barely a dot on its financial radar.
Earlier this month, this newspaper argued for a three-pronged approach to solving the cost of living crisis. First, economic policy must target increased productivity and ensure that the spoils are shared fairly with employees through increased wages; second, the reductions in real terms of benefits and tax credits of the last decade must be reversed; and third, the government must implement structural reforms to combat the high cost of living, especially housing. One estimate suggests low-income households will face a £1,300 drop in income this year. A £3 billion tax would help restore the balance, but the government should go further.
Business Secretary Kwasi Kwarteng told his officials he was opposed to singling out North Sea companies because there are many other companies involved in the supply and distribution of oil, gas and oil. ‘electricity. That’s a good point. He must identify them and add them to the list of companies liable for a surcharge.
However, Labor’s plan has the virtue of simplicity and so it is likely to be the option that Sunak eventually agrees to implement. The Chancellor has spent the past few weeks telling MPs and viewers that he is considering the idea, but it is understood that he is only now considering the options compiled by his advisers in Issue 11. He must act quickly. Fairness demands it.