2 Nov 2022

BP massive profit jump sparks calls for bigger windfall tax

11:36 am on 2 November 2022

By Dearbail Jordan, business reporter for BBC

Petrol prices continue to climb around the country.

BP made $US 8.2 billion ($NZ14.04b) between July and September. Photo: RNZ / Rebekah Parsons-King

The UK government is facing growing calls to raise more money from the windfall tax on energy firms after oil giant BP reported a huge rise in global profits.

BP made $US 8.2 billion ($NZ14.04b) between July and September, more than double its profit for the same period last year.

Surging oil and gas prices have led to big gains for energy firms but are also fuelling a rise in the cost of living.

BP expects to pay $US800m in UK windfall taxes this year while rival Shell recently said it will pay none.

The windfall tax was introduced by Rishi Sunak in May when he was chancellor. A Treasury spokesperson said the tax was expected to raise £17b ($NZ33.4b) this year and next "to help fund cost of living support for eight million people".

But Ed Miliband, shadow climate change secretary, said that BPs' profits were "damning evidence of the failure of the government to levy a proper windfall tax".

"Rishi Sunak should be hanging his head in shame that he has left billions of windfall profits in the pockets of oil and gas companies, while the British people face a cost-of-living crisis," he said.

Alok Sharma, UK's COP president and the former business secretary, tweeted: "We need to raise more money from a windfall tax on oil and gas companies and actively encourage them to invest in renewables."

Treasury sources have indicated an extension to the windfall tax is being discussed ahead of the Autumn Statement on 17 November, which will detail plans for tax rises and spending cuts as the UK government attempts to fill a "black hole" in public finances.

That could include increasing the rate oil and energy companies have to pay on extraordinary profits, extending the timeframe it applies for or expanding it to include other firms benefiting from higher oil prices such as electricity generators.

The Treasury has warned that everyone will need to pay more tax "in the years ahead".

Last week, Shell revealed that it had paid no windfall tax in the UK because it had invested millions of pounds in the country. But it said it expected to start paying the levy next year.

BP expected to pay $2.5b in tax on its North Sea business this year, which included the windfall levy.

The company also planned to buy back an additional £2.5b of its shares. So-called share buybacks help boost a company's share price and are popular with investors.

"Companies like BP are making huge profits and channelling these straight back to already-wealthy shareholders through share buyback schemes," said George Dibb, head of the Centre for Economic Justice at the IPPR, the left-leaning think tank.

"Instead of reducing costs for consumers or investing in renewable energy, these fossil fuel giants are prioritising transfers to shareholders."

Britain's newly appointed Prime Minister Rishi Sunak gestures as he delivers a speech outside 10 Downing Street in central London, on October 25, 2022.

Rishi Sunak introduced the UK's windfall tax but is being urged to raise it. Photo: Daniel Leal / AFP

'A windfall of war' - Biden

Oil and gas prices, which began increasing once Covid-19 restrictions eased, accelerated after Russia invaded Ukraine in late February, resulting in huge profits for energy companies. But they have also exacerbated price rises - or inflation - for consumers which hit 10.1 percent in September.

All the big oil firms, including Total and Exxon Mobil, have announced bumper profits in the past week. Overnight, oil giant Saudi Aramco said it had made a profit of $42.4b over just three months due to higher commodity prices.

On Monday, US President Joe Biden urged major US oil firms who are bringing in big profits to stop "war profiteering", threatening to hit them with higher taxes if they do not increase production which would help lower prices.

"Their profits are a windfall of war," he said.

Commenting on whether oil firms should pay more tax, Nick Butler, a former BP executive who is now a visiting professor at King's College London, told the BBC's Today programme: "They have to balance what they pay in tax, what they invest in the future and what they pay back to shareholders.

"I think the next tax squeeze will come on the electricity retailers who haven't been subjected to it yet," he said.

"But if BP has to pay more in tax I think their shareholders will have to pick up part of the pain."

Higher energy bills

Higher energy prices have fuelled the rise in gas and electricity bills for both households and businesses.

The UK government is limiting the impact by temporarily capping the cost of gas and electricity, but instead of lasting for two years as originally planned, this scheme will now end in April.

There have been warnings that typical household gas and electric costs could reach more than £4300 when support is scaled back.

no caption

There are fears of even higher bills for British householders once government assistance ends in April. Photo: 123RF

Oil and gas firms operating in the North Sea are taxed differently to other companies and pay a total tax rate of 65 percent.

Companies have been able to reduce the amount of tax they pay by factoring in losses or increasing investment.

The UK windfall tax includes a measure that allows energy companies to apply for tax savings worth 91p of every £1 invested in fossil fuel extraction in the UK.

Liberal Democrat Treasury spokesperson Sarah Olney said the tax was "incredibly weak".

But a Treasury spokesperson said: "We also want to see the sector reinvest its profits to support the economy, jobs, and our energy security, which is why the more investment a firm makes into the UK, the less tax they will pay."

BP's worldwide profit for the quarter was much higher than analysts had expected but dipped from the previous three months due to a fall in the wholesale price of oil.

Oil prices hit $US128 per barrel in early March as the assault on Ukraine intensified and a number of countries imposed sanctions on Russia and have since fallen back.

But BP said on Tuesday that even if oil prices dropped as far as $60 per barrel, it could still afford to return billions of dollars to its shareholders.


Get the RNZ app

for ad-free news and current affairs