Oil companies continue to profit as windfall tax fails to bite

Putin still making money from oil despite sanctions says expert

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Restrictions on the global supply of fuels since the war in Ukraine began have seen prices and oil company profits reach new heights. UK-headquartered Shell has more than doubled its earnings relative to the same period last year, following a summer of record profits for most major energy companies. The profit announcement has renewed calls for the Government’s windfall tax scheme to be bolstered in order to fund relief schemes for desperate households this winter.

Russia has historically been one of the world’s largest oil and gas producers. The sanctions imposed on the country in the wake of its invasion of Ukraine sent the price of a barrel of crude soaring.

Despite wholesale prices returning to normal as alternative suppliers filled the void, prices at the pump continued to rise, reaching all-time highs in early July – when retailers around the UK sold petrol and diesel for over £2 a litre.

As a result, energy firms began racking up unprecedented earnings, just as inflation breached double digits and the cost-of-living crisis began pushing UK households to the brink.

Since July, the price of fuel has fallen, but that hasn’t stopped Anglo-Dutch giant Shell from posting bumper profits.

Shell reported its second-highest quarterly profits on record on Thursday – raking in $9.5billion (£8.2billion) during the July to September quarter, more than double the figure from the same period the previous year.

This comes off the back of record $11.5billion (£9.9billion) profits posted between April and June when fuel prices at the pump hit their peak. The London-listed energy company also announced £5.9billion in shareholder payouts for the third quarter, and a 15 percent dividend hike in the next.

The group has now reported earnings of more than $30billion (£26billion) so far this year. Shell CEO Ben van Beurden said the energy industry “should be prepared and accept” that it will owe higher taxes to help ease the burden on the rest of society. 

Commenting on the news, former Labour leader and current Shadow Climate Change Secretary Ed Miliband said: “As millions of families struggle with their energy bills, the fact that Shell recorded the second highest quarterly profits in the company’s history is further proof that we need a proper windfall tax to make the energy companies pay their fair share.”

In fact, thanks to the way in which the windfall tax policy was set up, Shell has said it doesn’t expect to pay any this year.

READ MORE: UK government pinpoints exact times UK homes to face winter blackouts

A windfall tax is a temporary levy on companies profiting from something for which they weren’t responsible. 

Back in May, as Chancellor, now-Prime Minister Rishi Sunak introduced one on the profits of oil and gas companies, described as a 25 percent Energy Profits Levy.

The Treasury expected the scheme to raise around £5billion in its first year, and is set to expire by the end of 2025. However, only applying from 26 May, the majority of April to June takings weren’t hit by the Government’s windfall tax. 

With the controversial inclusion of a new investment allowance – saving 91p in taxes for every £1 invested in UK extraction as an incentive – oil companies such as Shell are likely to end up owing very little in windfall taxes.

Homeowners offered long-term contracts to house illegal migrants [INSIGHT]
UK’s worst airport named after ‘resources pushed to breaking point’ [REVEAL]
Russia blow as US Army officer pinpoints Ukraine move for Crimea [ANALYSIS]
Labour crisis as Sunak overtakes Starmer in popularity poll [BREAKING]

As wholesale oil and gas prices peaked during the second quarter this year, BP reported $9.3billion (£7.6billion) in profit – its highest in 14 years and a tripling of the $3.1billion (£2.6billion) figure a year earlier.

US oil giants, with an even smaller share of their profits made in the UK and subject to the Government’s windfall tax, reported even greater gains.

ExxonMobil declared earnings of $17.9 billion (£14.7billion), more than three times last year’s $4.7billion (£3.9billion), while Chevron’s surged from $3.1billion (£2.6billion) to $11.6billion (£9.6billion).

Data analysis by Bloomberg predicts the five oil supermajors – Shell, BP, ExxonMobil, Chevron and TotalEnergies – will post combined earnings of $50.7billion (£43.6billion) for the July to September quarter, down from $62billion (£53.4billion).

Despite the profit dip from the summer, pressure from politicians on oil firms to fund energy crisis mitigation policies is unlikely to decrease as households require extra help through the colder winter months.

Asked on LBC whether the Government would consider extending the windfall tax, newly appointed Chairman of the Conservative Party Nadhim Zahawi said: “These are tough decisions and I know the Chancellor and the Prime Minister will be looking at everything.” 

Mr Hunt is set to lay out the Government’s new taxation and spending plans in an Autumn Statement on November 17.

Sir Keir Starmer – leading the push for a general election as soon as possible – has said Labour would retroactively apply the windfall tax back to January 2022 in order to fund a six-month freeze on energy prices, as well as get rid of the tax relief incentive component of the scheme.

Oil and gas firms already pay far more than the regular 19 percent corporation tax – facing 30 percent Ring Fenced Corporation Tax and a supplementary 10 percent. However, the tax code allows for the likes of BP and Shell to deduct the costs of decommissioning platforms and other expenses – paying almost no tax in the UK in the past few years as a result.

Source: Read Full Article