Tax fossil fuel profits

Despite the recent U turn announcing a nominal £5 Billion windfall tax on energy companies, it’s outrageous that just 9 days earlier MPs (including Anthony Browne and Lucy Frazer) voted against a windfall tax on the oil and gas companies.

This makes me angry.

Many Cambridge households and businesses are suffering, but the fossil fuel companies are making extraordinary profits from the rocketing energy prices. We should tax these excess profits properly and use the money to help people that can’t afford their bills; to reduce the amount of energy we all need to use (for example by insulating homes and improving public transport); and to increase the UK’s clean, cheap renewable solar and wind power.

That would genuinely be an energy strategy to help address the cost of living and climate crises.

Instead, our government is behaving strangely: as if it’s on the side of the energy companies, not voters. Could this be connected with the recent revelations that UK and US oil investors are funding anti-‘net zero’ campaigns?

These windfall profits are outrageous. In May Shell announced that their quarterly profits had tripled. An analysis by the Liberal Democrats estimated that a 25% windfall tax would raise around £10.5 billion from the profits of BP and Shell alone this year.  That’s £375 per household.

It’s not just the excess profit the fossil fuel companies are making, its worse than that.

As a recent report by Green Alliance pointed out, the UK has one of the most skewed tax environments in the world. Although initially the UK government received up to £12 Billion p.a. from North Sea oil and gas, since 2013 production is now often a net cost to the UK because of a raft of tax reliefs and subsidies.

In total, since 2015, the UK government has made net payments to ExxonMobil, BP and Shell totalling £1.25 billion (£45/household). There’s also a generous £18 Billion subsidy on offer (£500/household) for decommissioning old oil rigs, so this net cost will get worse in future.

Shockingly, it becoming apparent that much of the nominal £5 Billion windfall tax will be refunded to the oil and gas companies in the form of these reliefs and subsidies. Alex Chapman of the New Economics Foundation has estimated thatthe new tax relief on oil and gas investment will mean the tax payer subsidising new investment in fossil fuels to the tune of about £5.7bn up to 2025” So potentially, its not a windfall tax at all. Just an increased cost on UK taxpayers in order to subsidise more oil and gas extraction.

And its not just the production companies, like BP and Shell. There are the astonishingly profitable ‘Network Operator’ monopolies that run the networks of gas pipelines and electricity power lines. Whereas the average FTSE100 company makes a profit of about 10%, the Network Operators make over 40%.

It’s the most profitable sector in the UK, yet they typically pay half the tax of other companies. And the profits largely go abroad. For example Cadent, who supply gas to Cambridge, is 31.1% owned by the Chinese and Qatari governments, via their Sovereign Wealth Funds.

This is nuts.

We should be taxing fossil fuel companies properly, not subsidising them. Then we can increase help for those in hardship and accelerate the transition to a fair low carbon future, free at last from dirty fossil fuels.