The main opposition Labour Party this weekend called on Prime Minister Boris Johnson to impose a windfall tax on companies pumping oil and gas from the North Sea, saying that the money raised could be used to cut roughly £200 ($272) from soaring household bills.
The party says the rate of corporate tax the companies pay should be increased by 10 percentage points for a year. The additional revenue would be spent on eliminating a 5% sales tax on energy for a year and covering the cost of bailing out dozens of small energy providers that have already gone bust because of rising wholesale costs. Labour would also increase energy subsidies for the poorest households to £400 ($545) per year from £140 ($190).
British consumers will pay roughly £790 ($1,075) more to heat and light their homes this year, according to Bank of America. Wholesale European gas prices have jumped by 400% over the previous year and electricity prices have increased by 300%, the bank’s analysts said last week. The increases have been driven by cold weather, nuclear plant outages in France and reduced gas flow from Russia.
BP (BP) and Shell (RDSA) both operate in the North Sea, and have benefited from rising gas and oil prices. BP (BP) CEO Bernard Looney told the Financial Times in November that surging commodity prices had turned the company into a “cash machine.” The company posted profits of $3.3 billion in the third quarter of 2021, and said it planned to return an extra $1.25 billion to shareholders.
Shell made more than $4 billion in the quarter, and is also rewarding investors with a $7 billion share buyback program as it returns cash from the sale of its shale assets in the Permian Basin, which stretches from Texas to New Mexico.
Industry group OGUK, which represents UK offshore producers including Shell and BP, said last week that a windfall tax would make energy companies less likely to invest in the country, causing “irreparable damage to the industry” that would “leave consumers even more exposed to global shortages.”
UK households are already under pressure from inflation of more than 5% and they face a sharp rise in costs in April, when a cap on energy prices will be raised. The poorest 10% of households will see their spending on energy increase from 8.5% of their total budget to 12%, according to the Resolution Foundation.
“Proceeding with such a large, overnight bill rise without mitigating measures at a time when real wages are likely to be falling looks completely untenable,” the group said in a report published in late December.
The UK government has so far rejected calls for a windfall tax on North Sea producers, even as other European countries take action to shield consumers from the sharp increase in prices.
“What Labour are putting out just doesn’t add up. A windfall tax on oil and gas companies, who are already struggling in the North Sea, is never going to cut it,” cabinet minister Nadhim Zahawi told LBC radio on Sunday. “The best way to help people is to make sure there is a job available to them.”
European households will pay €650 ($735) more for energy this year, bringing average spending to €1,850 ($2,095), according to Bank of America. Consumers in the United Kingdom and Italy face the largest increases of the major economies in western Europe.