Pressure is mounting on Chancellor Rishi Sunak to impose a one-off windfall tax on British foreign oil and gas operators, just weeks after the BP boss said high commodity prices had turned his company into a “cash machine”.
Labor, the Liberal Democrats and some Tory MPs want Sunak to levy a tax on the profits of North Sea operators to ease the rising domestic energy bills, arguing that the sector can easily withstand the hit.
Shadow Chancellor Rachel Reeves said a windfall tax would partially fund a Labor Plan to reduce energy costs for all consumers by around £ 200 this year, with a further £ 400 being deducted from the accounts of more than 9 million poorer households .
The industry claimed that a one-off windfall tax on UK foreign oil and gas operators would cause “irreparable damage” to the sector and leave consumers even more exposed to global shortages.
But politicians at Westminster see the operators as a potential source of money to ease the cost-of-living crisis, not least because industry leaders have suggested their companies were flooded with cash.
In November, Bernard LooneyBP’s CEO said rising global commodity prices had made his company a “cash machine” as it strengthened its share buyback program, thanks to a sharp rise in quarterly profits.
“When the market is strong, when oil prices are strong and when gas prices are strong, it’s literally a cash machine,” he told the Financial Times.
Meanwhile, Serica Energy, the North Sea company responsible for 5 per cent of UK gas production, said in September it expected “very significant returns”To shareholders, thanks to record high prices.
Despite this, Oil and Gas UK, the foreign operating body, has claimed that companies will become increasingly reluctant to make long-term investments if they are threatened with windfall taxes whenever prices rise.
Mike Tholen, sustainability director at OGUK, said calls for a windfall tax were “in nobody’s interest” and that the treasury was already seeing “significantly higher returns” from North Sea energy companies.
“Over the next two years, the Treasury expects an additional £ 3 billion in tax revenue from this industry – with a projected direct tax consumption of almost £ 5 billion. The upstream oil and gas industry is already paying almost double the rate of corporate taxes that others sectors, ”said Tholen.
He added that by taxing companies more, the government is also running the risk of stopping investment in green energy infrastructure in the UK.
Despite energy companies’ UK tax contribution, North Sea operators still benefit from one of the most favorable tax regimes compared to other oil and gas producing regions around the world.
According to Labour’s plan, North Sea energy producers will be forced to pay £ 1.2 billion to mitigate household bills through a year-long 10 percentage point increase in their corporation tax.
Labor will also scrap VAT on fuel bills as part of an effort to curb energy prices; a limit on household bills is expected to rise from £ 1,277 for an average household to almost £ 2,000 in April, driven by high wholesale gas prices.
Sir Ed Davey, Lib Dem leader, who also supports the windfall tax, said: “It can not be right that some energy fat cats catch up with record gas prices while millions of people can not even afford to heat them. . ” Chris Skidmore, a former Tory energy minister, also endorsed the idea.
Sunak will hold a mini-budget in March, but the Treasury has been wary of one-off taxes in the past, which could have the effect of significantly reducing investment and supply in the year it is implemented – putting further upward pressure on prices .
There is a fear in government circles that a foreign windfall levy will also largely hit oil rather than gas producers, which will force up fuel prices. But Sunak also said he is considering a range of options to help people with their household energy bills.