Rebecca McQuillan: Even Tory voters want a windfall tax on oil companies

Oil and gas giants like Shell and BP would disagree. We sometimes make vast profits, they would argue (they made a combined first quarter profit this year of £12.2bn) but other times we make a loss, the one compensating for the other. They would insist that their activities serve a critical social purpose, not just in keeping people’s gas boilers going and cars on the road, but in making the transition to net zero through investments in renewables.

UK government ministers rush to the companies’ defence. Indeed, in Boris Johnson’s version of capitalism, there is no scope for a government levy on huge and unexpected energy company profits. He insists that investments would be damaged by a windfall tax imposed to help mitigate the current burden on bill-payers.

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But that’s demonstrably untrue. There is scope for a tax, and the case for one has become overwhelming.

The chief objection, that a windfall tax would prevent companies keeping their promises to secure energy supplies and invest in renewables, is false. In that view, the Tories are at odds not only with Labour, the Lib Dems and 81 per cent of Tory voters, but with the chief executive of BP itself.

Oh yes. Deliciously, when asked which of his firm’s planned £18bn British investments it would cancel if a windfall tax were imposed, BP boss Bernard Looney said: “There are none that we wouldn’t do.”

Ducks in total disarray. Curious, this, because the danger for ministers of being hijacked by the truth was obvious: pretty much everyone sensible has been pointing out for weeks that a windfall tax on an unexpected profit should have no impact on existing investment plans. BP has only confirmed it; Shell too has played down the idea that a windfall tax would lead the firm to set aside its green investment plans.

A second argument against a windfall tax is that it would hit “ordinary pensioners” whose pension funds are invested in oil and gas firms. There is truth in this but pensioners are already profiting from the gains these companies are posting and given that the proposed tax would be a modest 10 per cent, private pension holders would still see a benefit.

More to the point, at a time when children are wearing their coats inside because their parents can’t afford to put the heating on, and when there is a risk of hunger becoming endemic in some communities, there is a decision to be made about priorities. It’s fairly clear where the greatest immediate need lies.

A windfall tax would generate an estimated between £1bn and £3bn – not enough to remove the pain of bill rises, but enough to ease it. The government would have a choice on how to spend that money – with direct grants to those teetering on the financial brink, or through measures designed to cut energy use, such as insulation.

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The government’s capacity to resist this tax is fast diminishing. Indeed, even the Chancellor seems unconvinced by the objections and is openly entertaining the idea, saying he’ll “look again” at the tax and warning that oil companies must invest more of their profits “in our country and in our energy security” – or else.

So why hasn’t it been imposed yet?

Partly because of a determination not to cede the point to Labour. The Tories implementing a windfall tax – Labour’s most high-profile policy demand – would be read as a tacit admission of failure and yank the starter motor into life on Labour’s general election campaign (the next poll is due in just two years).

Another reason is political rigidity. Sunak insists “we’re a party that believes in aspiration” and has spoken of concerns about low business investment in the UK economy. It’s all of a piece with his approach to the cost-of-living crisis, producing a spring statement that held down spending. Right-wing commentators complain about threats to the sacred principle of allowing companies and individuals to keep the money they make, as if they were above society.

The difficulty with all this is that we are living through a unique financial crisis the burden of which must be shared. If individual households are being told they must “endure hardships” against a backdrop of war in Ukraine, as business secretary Kwasi Kwarteng has said; if small businesses must do the same, contending with eye-popping fuel costs, then so must big corporations.

Clinging to an optimal low-tax scenario for Shell and BP when households are being told with a shrug they must endure the worst hit on living standards since the 1950s – with more pain to come – is politically (and morally) unsustainable. Inflation in the UK is at seven per cent, prompting the Bank of England to raise interest rates again yesterday. There is no sign of energy prices dropping any time soon and the likelihood of more bill rises in the autumn.

A government that has raised the tax burden on households in the midst of a cost-of-living crisis, is taking a lethal risk with public opinion by refusing to impose a levy on big companies that are profiting from that crisis, even if those extra profits have been made inadvertently.

Labour’s general election leaflets are already writing themselves.

We are dealing with such large numbers. In the first three months of this year, BP made a bumper profit of £4.9bn – more than twice as much as the same period last year. Looney wasn’t exaggerating when he called his company a “cash machine”.

Shell, meanwhile, has made even more. Its first quarter profits are its highest ever, at £7.3bn. Both have divested from Russia but benefited from high energy prices, driven up by the war in Ukraine and higher demand as the pandemic has eased.

Shell and BP are not alone. Oil and gas companies are wallowing in cash – TotalEnergies and also Equinor, a big supplier of gas to the UK, are posting record earnings.

Oil and gas companies have benefited from a hugely favourable fiscal environment in the UK going back years, paying corporation tax but also receiving billions in subsidies – often more than they pay in tax.

The revenues flowing right now into their bank accounts derive, ultimately, from bill-payers and consumers. They include teachers and care workers and nurses and hospitality workers and people subsisting on the state pension.

It’s not beautiful, it’s not virtuous and it certainly isn’t just. Capitalism, particularly where essential utilities are in the hands of private interests, must be made to work for the common good and the common good would be served, right now, by a windfall tax.

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