Today BP announced that its annual profits more than doubled to £23bn in 2022, while last week oil and gas giant Shell announced eye-watering profits of £32.2bn, its highest in 115 years.
As millions of families up and down the country struggle to make ends meet, due to a cost of living crisis and soaring energy bills, those at the top of the economy, in the words of the RMT’s Eddie Dempsey are ‘having a disco’.
Today BP announced that its annual profits more than doubled to £23bn in 2022, while last week oil and gas giant Shell announced eye-watering profits of £32.2bn, its highest in 115 years. Yet when it comes to how much the two companies have paid in windfall taxes, the numbers are comparatively small.
Despite Shell’s record-breaking profits, it only paid $134m of that to the UK government under the windfall tax introduced last year. It’s also worth pointing out that up until October last year, Shell reported it had not yet paid any windfall tax in the UK despite making record global profits of nearly $30bn (£26bn) in the first nine months of 2022. BP meanwhile says it will pay $800m in windfall taxes for last year.
So why are energy giants paying so little, as millions struggle, even though the government insists it has introduced a windfall tax?
The UK windfall tax (energy profits levy) was introduced by Rishi Sunak when he was chancellor, in May last year. He said it would raise £5bn. It taxes the profits of all companies which extract oil and gas in the British areas of the North Sea, irrespective of whether those companies are based in Britain or abroad.
It was originally an extra 25% charge bringing their total UK tax rate to 65%, and was due to last until the end of 2025 at the latest. Chancellor Jeremy Hunt later increased it to a 35% charge – or 75% total tax rate – and extended it to potentially as late as April 2028.
However, the windfall tax includes an investment loophole, which essentially means that oil and gas companies get massive write downs on their tax bills if they invest in more oil and gas in the UK.
The loophole means that oil and gas firms are able to claw back more than 91% of their capital investment in the form of tax relief. The capital investment can take the form of covering everything from hiring vessels and rigs to engineering contracts.
The reason for this investment allowance was to boost oil and gas production to ensure the security of supplies to Britain after the invasion of Ukraine.
Yet the loophole allows energy companies off the hook as they make record profits and has led to renewed calls for a tougher windfall tax.
Labour shadow climate secretary Ed Miliband has said that this “massive loophole” should be scrapped and the headline rate of tax increased from 75% to 78% of profits.
According to research from the New Economics Foundation (NEF), removing the tax incentive loophole in the government’s energy profits levy would have generated at least £22bn in additional revenue over the next six years, which could’ve been used to reduce millions of families’ energy bills by £336 a year.
The NEF also found that closing this loophole alone could pay for emergency insulation measures for 3.31 million households.
With 8.4 million households expected to be in fuel poverty by April, isn’t it time that the government asked energy companies to pay their fair share as they rake in record profits? It’s time for a tougher windfall tax.
Basit Mahmood is editor of Left Foot Forward
(Picture credit: Youtube)
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