There is growing pressure on Chancellor Rishi Sunak to impose a one-off tax on an unexpected tax on British offshore oil and gas operators, just weeks after the BP chief said high commodity prices had turned his company into an “ATM”.
Labor, the Liberal Democrats and some Tory MPs want Sunak to introduce a tax on the profits of North Sea operators to mitigate growing domestic energy bills, arguing that the sector can easily withstand the blow.
Rachel Reeves, the shadow chancellor, said the unexpected income tax would partially fund a work plan to reduce energy costs for all consumers by about £ 200 this year, with a further £ 400 deducted from the accounts of more than 9 million poorer households.
The industry argued that a one-off tax on windfall revenues to British offshore oil and gas operators would cause “irreparable damage” to the sector and leave consumers even more exposed to global shortages.
But politicians in Westminster see operators as a potential source of money to alleviate the cost of living crisis, not least because industry leaders have suggested their companies are flooded with cash.
In November, Bernard Looney, BP’s chief executive, said rising global commodity prices have made his company a “cash machine” as it has strengthened its share repurchase 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, this is literally an ATM,” he told the Financial Times.
Meanwhile, Serica Energy, the North Sea company responsible for 5 per cent of UK gas production, said in September that it expected to “very significant returns”To shareholders, thanks to record high prices.
Nonetheless, Oil and Gas UK, a body for the offshore industry, argued that companies would become increasingly reluctant to invest in long-term investments if they were threatened with an unexpected tax whenever prices rose.
Mike Tholen, director of sustainability at OGUK, said the calls for a tax on windfall revenues were “not in anyone’s interest” and that the treasury was already recording “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 of almost £ 5 billion. The upstream oil and gas industry is already paying almost double the corporate income tax rate compared to other sectors, ”Tholen said.
He added that by taxing companies more, the government also risked holding back investments in green energy infrastructure in the UK.
Despite the tax contribution of energy companies in the UK, North Sea operators still benefit from one of the largest favorable tax regimes compared to other regions of the world that produce oil and gas.
Under Labor’s plan, North Sea energy producers would be forced to pay £ 1.2bn to ease household bills through a one-year profit tax increase of 10 percentage points.
Workers would also abolish VAT on fuel bills as part of efforts to limit energy prices; The ceiling on household bills is expected to rise from £ 1,277 for the average household to almost £ 2,000 in April, driven by high wholesale gas prices.
Reeves said the whole package would cost £ 6.6 billion; claimed that in addition to £ 1.2 billion in unexpected taxes, the treasury would collect £ 3.1 billion from more than expected VAT receipts from higher prices and £ 2.3 billion from higher tax receipts from North Sea energy production.
Sir Ed Davey, leader of the Lib Dem, who also supports the tax on windfall revenues, said: “It cannot be right for a few energy fat cats to snatch from record gas prices while millions of people cannot even afford to heat their homes. ” Chris Skidmore, a former Tory energy minister, also supported the idea.
Sunak will maintain a mini-budget in March, but the treasury has been cautious in the past with one-off taxes, which can have the effect of significantly reducing investment and supply in the year they are implemented – further increasing price pressure.
There are fears in government circles that levies from unexpected offshore revenues would also hit oil, not gas, producers heavily, leading to higher fuel prices. But Sunak also said he is considering a number of options to help people with their electricity bills.
Meanwhile, Labor will on Monday put forward proposals to help companies facing higher electricity costs, with a £ 600m contingency fund to support companies struggling, including energy-intensive industries.