Energy companies are making obscene profits. On Friday, EDF announced it made £1.12 billion in profits in its annual results, the latest in a slew of monster returns for major oil, gas, and electricity companies. Two weeks ago BP announced its profits more than doubled to £23 billion, and earlier this month Shell raked in a whopping £32.2 billion, the most in its 115-year history. Meanwhile, Centrica (the owner of British gas) took in £3.3 billion whilst simultaneously using agents to force prepayment metres on vulnerable customers struggling to cope with the cost of living crisis.
One would think that the windfall tax introduced by Jeremy Hunt in his Autumn Budget would prevent oil companies from profiting from the war in Ukraine. Hunt’s measures increased the windfall to 35%, up from 25%, and extended it to potentially as far as April 2028. Despite this, Shell only paid a measly £112 million to the UK government under the windfall tax introduced last year and despite making a record £26 billion in the first 9 months it did not pay a penny in windfall tax until October. In a similar measure, BP only paid £583m.
This begs the question, why have oil and gas companies been able to pay so little in tax, when millions are struggling?
There is an investment loophole in the current legislation which means oil and gas firms are able to claw back more than 91% of their capital investment in tax relief by investing in the North Sea. This means that oil and gas firms are getting a significant tax break to invest in non-renewable energy. BP has already cut its emissions pledge and plans greater oil and gas production over the next seven years compared with previous targets.
The Government should face the reality that in the face of these astronomically large profits, leaving this loophole open is an insult to the millions of households expecting a £500 hit to their monthly energy bills come April. Worse still, the Conservatives are leaving an estimated £22 billion on the table, which would be enough to pay for emergency insulation measures for 3.31 million households according to the NEF. The cost of expanding the scheme is not likely to have a significant impact on investment in the UK, following last year’s introduction of the windfall. BP’s chief executive, Bernard Looney admitted the levy would not prevent it from making any planned investments until at least after 2025.
Windfall taxes are popular, 68% of Brits backed the idea of a windfall tax in September 2022 and with a further 8.4 million people facing fuel poverty by April, the Government stepping up and strengthening the windfall tax could offer a win/win, raising money for our beleaguered public services, and generating some positive polling at a time when the Conservative Party could use it most.