Windfall profits of nearly £50bn shared by the world’s five biggest oil companies have sparked a chorus of calls for higher taxes on the sector as UK households are told to prepare for annual energy bills averages over £3,600 this winter.
Britain’s BP said on Tuesday that underlying profits tripled to $8.5bn (£6.9bn) between April and June, helped by high oil prices. It was its biggest quarterly profit in 14 years and BP said it would pay out almost £4billion to shareholders as a result.
Prices soared amid fears over energy supplies caused in part by Russia’s invasion of Ukraine.
Oil companies in the UK and elsewhere have recorded booming profits in recent months on the back of rising energy prices, as households around the world grapple with soaring bills.
Rachel Reeves, Labour’s shadow chancellor, said the ‘tempting profits’ showed the government was ‘totally wrong’ for giving major tax breaks to oil companies.
A host of Labor, Liberal Democrat and Green MPs and environmental campaigners called for a higher windfall tax on oil companies.
The second-quarter profit windfall included a record $11.5 billion profit for BP rival Shell in the FTSE 100, record profits of $17.6 billion and $11.6 billion respectively for the Americans ExxonMobil and Chevron, plus $9.8 billion for French Total. In the first six months of the year, the companies made combined adjusted profits of nearly $100 billion.
As the Russian invasion continues, research firm Cornwall Insight has predicted that the energy price cap on annual bills in Britain will rise to £3,615 a year from January. It was an increase from its previous estimate of £3,363 made last month.
The cap, which is set quarterly by energy sector regulator Ofgem, was £1,400 a year as recently as October last year. Cornwall expects the cap to remain above £3,400 for the whole of 2023, putting more pressure on household finances.
Further energy price hikes in the coming months will also put further pressure on the new UK Prime Minister, once Conservative Party members choose between Truss and former Chancellor Rishi Sunak by 5 september.
BP chief executive Bernard Looney, whose total salary in 2021 reached £4.5million, in February described BP as a “slot machine”, even before the invasion of Ukraine by the Russia does not raise prices yet. The company’s profit between April and June was the second highest in BP history and capped a period that will be remembered as one of the most profitable quarters in the history of the oil industry.
In May, the British government responded belatedly to political pressure amid soaring energy prices by imposing a one-off £5 billion tax on oil companies’ “windfall profits”. However, the 25% tax, known as the Energy Profits Tax, only came into force on July 14, meaning it does not apply to profits made by BP or other oil companies in the second quarter.
Reeves criticized the government for simultaneously giving oil companies 80% tax breaks for new investments, allowing them to lower their tax bills by drilling for more oil. She said Labor would instead use the extra money from the scrapping of tax breaks for a “green energy sprint”, as well as better insulation of homes to reduce energy consumption.
“People are worried about energy prices rising again in the fall, but again we’re seeing eye-popping profits for oil and gas producers,” she said Tuesday.
“Labour argued for months for a windfall tax on these businesses to cut bills, but when the Tories finally did an about face they decided to return billions of pounds to producers in the form of tax breaks. It is totally false.
Environmental campaign groups Greenpeace and Friends of the Earth have also called for a much stricter levy on energy profits.
Doug Parr, chief scientist at Greenpeace UK, said: ‘As households are pushed into poverty with repercussions across the economy, fossil fuel companies are laughing all the way to the bank. The government is failing the UK and the climate in this hour of need.
“The government needs to put in place an appropriate windfall tax and stop giving corporations massive tax breaks on destructive new fossil fuel investments.
Jacob Rees-Mogg, the government’s Brexit opportunities minister, told LBC radio: “I’m not in favor of windfall taxes. The energy industry is extremely cyclical. You have to have a profitable oil sector so that it can invest in energy extraction.
Looney acknowledged the difficulties encountered by households during a call with analysts. Energy affordability is an “acute issue for many,” he said.
“We all have to recognize that this is a very, very difficult place for people, not just in the UK but also around the world,” he said. “We understand that. We understood.”
But he also said BP’s oil and gas operation was “doing what it was supposed to do: profit from rising prices”. BP also said it benefited from massive growth in profit margins at its refineries, which produce products such as gasoline, diesel and jet fuel, all of which contributed to rapid inflation in major economies.
Environmental groups said windfall tax revenues should be invested in energy-saving measures such as insulating homes, which would help tackle the climate crisis and reduce dependence on electricity. despotic oil and gas producing regimes such as Russia.