As Labour defeated...

Sunak issues new windfall tax warning to oil firms

Rishi Sunak delivers 2021 Autumn Budget
Rishi Sunak: tax remains an option

Energy companies could still be hit with a windfall tax unless they invest in growing the sector and securing domestic supplies.

Chancellor Rishi Sunak issued the warning before seeing off a Labour attempt to introduce the tax on company profits. Labour’s binding vote was defeated by 310 votes to 248.

Labour’s Shadow Climate Change and Net Zero Secretary, Ed Miliband, said the vote “condemned millions of families to misery and anxiety as they struggle to pay their energy bills.”

During exchanges in the Commons Mr Sunak said windfall taxes are not a “simple and easy answer for every problem.”

To avoid such a move he called on the oil and gas giants to invest significantly in ramping up domestic energy production.

“What we want to see are energy companies who have made extraordinary profits at a time of acutely elevated prices, investing those profits back into British jobs, growth and energy security,” he said.

“But as I have been clear, and as I have said repeatedly, if that doesn’t happen soon and at significant scale, then no option is off the table.”

Energy firms such as Shell and BP have reported record underlying profits during the first three months of the year on the back of rocketing oil and gas receipts.

Shell revealed quarterly profits of $9.13bn, and has expanded its shareholder buyback scheme to $8.5bn, while BP has recorded earnings of $6.2bn and has upped its dividends to around $6bn this year.

Labour has led the call for a one-off £2bn levy on North Sea oil and gas companies, arguing it could be used to cut household energy bills by £600.

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The party wanted to amend the parts of the Queen’s Speech which deal with “tackling the short-term and long-term cost of living increases”.

However, Prime Minister Boris Johnson is concerned a tax could deter badly-needed investment into the energy sector and renewables in particular.

Business Secretary Kwasi Kwarteng has written to both BP and Shell calling for the firms to honour their spending commitments.

The energy companies insist they are doing so. Shell said it is allocating £25bn by the end of the decade to the UK sector, while BP has pledged to spend £18bn on domestic energy projects.

In a letter to six north-east MPs ahead of the vote in Westminster, the Aberdeen and Grampian Chamber of Commerce (AGCC) also argued that the industry is on track to pay “sufficient incremental tax revenues” that would  “fund the support for consumers that some opposition parties have called for”.

BP Clair Ridge
Oil firms say they are committed to invest

In the letter, Chamber’s policy director Ryan Crighton said North Sea firms are forecast to fork out £8.1bn for 2022/23, and may yet pay closer to £10bn.

This would be a £7.2bn increase on 2020, driven by the rising price of oil and gas – which has in turn fuelled calls for energy firms to pay a windfall to allay the impact on consumers.

Criticising the windfall tax proposal, Mr Crighton said: “It is our view that this short-term, economically illiterate move will achieve little apart from making the North Sea – already one of the world’s most mature basins – less attractive to investors.

“This would place jobs, tax revenues and our domestic energy security at risk, and also limit ability and appetite to invest in the low carbon research and development we so desperately need.”

“BP chief executive, Bernard Looney, has said that a windfall tax “would challenge investment in home-grown energy.”

“Centrica boss Chris O’Shea said it would hit investment and push up costs in the long term.

“Dierdre Michie, chief executive of OEUK, warns that we risk heaping a supply crisis on top of an existing price crisis if the UK were to pursue such a policy.

“The view of the industry is clear; a windfall tax will divert investment, which, perversely, has the potential drive-up energy bills in the long term.”

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