BP has just confirmed huge profits for this year
Energy firms are taking home increasingly large profits, as energy bills skyrocket and the cost of living crisis continues to worsen.
BP has just reported it made £7.1 billion between July and September this year, more than double its profits for the same period in 2021.
Total, Exxon Mobil, Shell and Saudi Aramco have all reported bumper profits this year too.
With inflation at 10.1% in September, and a recession looming, major questions are being asked about why these companies are benefitting as the rest of the country struggles.
Critics are calling for a windfall tax to help level the playing field.
Here’s what you need to know.
What is a windfall tax?
This is a one-off tax on a single company, or a group. It targets the excess profits these companies had not expected to make.
It can apply to any kind of industry but at the moment, people are talking about it in context of the oil and gas companies which are profiting due to the high energy prices.
Don’t we already have one?
After pressure from Labour, the Liberal Democrats and the SNP, the Conservative government finally gave in and agreed to a windfall tax earlier this year.
Having argued that increasing taxes would “stop investment” – especially in new green power – then-chancellor Rishi Sunak introduced a windfall tax in May.
It is a 25% windfall tax on oil and gas producers in the North Sea, known as the Energy Profits Levy, but it has a firm end date of 2025 and allows companies to offset against the cost of decommissioning oil fields.
According to the Treasury, this will raise £17 billion this year, and help fund the cost of living support for eight million people.
Is it enough?
Well, Shell has not paid any windfall tax in the UK because it has invested millions in the UK, but claims it will start paying next year.
BP will soon pay £2.18 billion in tax on its North Sea business, including the windfall levy, and buy back an extra £2.5 billion to boost its share price. This means their shareholders will get more money.
Shadow climate change secretary Ed Miliband warned that BP’s profits were “damning evidence of the failure of the government to levy a proper windfall tax”.
He continued: “Rishi Sunak should be hanging his head in shame that he has left billions of windfall profits in the pockets of oil and gas companies while the British people face a cost-of-living-crisis.”
UK’s Cop president (who was just booted out of the cabinet in Sunak’s reshuffle), Alok Sharma also tweeted: “We need to raise more money from a windfall tax on oil and gas companies and actively encourage them to invest in renewables.”
What else could the government do?
There could be an extension to the current windfall tax unveiled in the Autumn Statement on November 17, where the government will try to plug the “fiscal black hole” in public finances.
There are several ways the government could “extend” this tax.
It could increase the rate the companies have to pay on their profits, extend the timeframe it applies to, or put it on electricity generating firms instead.
What is happening in other countries?
The high energy prices are happening all over the world, due to a range of factors – particularly the war in Ukraine.
On Monday, US president Joe Biden called the oil companies’ profits “outrageous” and urged the energy firms to stop “war profiteering”.
He also warned that unless these oil and gas companies invest their profits in lowering costs for Americans, he will urge Congress to consider a tax penalty for them (likely to be a windfall tax).
The EU also announced plans to bring in a windfall tax in September, requiring oil, gas, coal and refining firms to make a “solidarity contribution” of 33 per cent of their taxable surplus profits from 2022. This could raise 140 billion euro (£121 billion).