Energy firms making 'war profits' from Russia's invasion of Ukraine, Labour MP says

Shadow chancellor Rachel Reeves said energy firms should be taxed more to help struggling families and businesses.

WASHINGTON, DC - MAY 24: Rachel Reeves, UK Labour Party's Shadow Chancellor Of The Exchequer, speaks at the Peterson Institute of International Economics during her three-day visit to the U.S. on May 24, 2023 in Washington, DC. Reeves used the institute's setting to introduce a plan inspired by the administration of U.S. President Joe Biden that she calls
Shadow chancellor Rachel Reeves said energy firms should be taxed more. (Getty)

The shadow chancellor has accused energy firms of making "war profits" from Russia's invasion of Ukraine and has called for a “proper” windfall tax.

Rachel Reeves said energy firms had “benefited with higher profits” since the start of the war last February and should be taxed more to help families and businesses with high energy bills.

The government imposed a 25% Energy Profits Levy (EPL) on oil and gas producers last May in the wake of soaring energy prices due to the war.

The government increased the windfall tax in November to 35%, bringing the UK's total tax rate on the sector to 75%, one of the highest in the world.

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Gasoline pumps with Shell's logo are seen at a petrol station in South East London, Britain, February 2, 2023, REUTERS/May James
The government imposed a 25% energy profits levy on oil and gas producers last May. (Reuters)

Reeves told the BBC: "There needs to be a proper windfall tax on the huge profits the energy giants are making, because while they make huge profits, people are paying huge bills.

She added: "Those are the windfalls of war, they should be taxed properly, to help people with a cost-of-living crisis.

"They are war profits. The only reason that energy prices rose like that is because of Russia's illegal invasion of Ukraine.”

The Labour Party has said it would raise taxes on the energy sector and axe an investment allowance which enables oil and gas producers to offset a large chunk of the windfall tax.

There are also calls from Liberal Democrats to close this part of the law.

Lib Dem leader Sir Ed Davey said this week the government “could have chosen to cut energy bills months ago funded through a proper windfall tax.”

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Rescuers work at the site of a clinic heavily destroyed by a Russian missile strike, amid Russia's attack on Ukraine, in Dnipro, Ukraine May 26, 2023. REUTERS/Mykola Synelnykov
The war in Ukraine caused global energy prices to soar. (Reuters)

The war in Ukraine caused global energy prices, specifically European gas prices, to soar as Europe and the Kremlin started sanctioning each other.

This meant that the supply of Russian gas to Europe dried up, meaning that other suppliers, such as Shell and its rival BP, could profit.

Shell made £7.6 billion in profit in the first three months of the year, joining BP, which announced first-quarter profits of £4b, in reporting expectations-beating results earlier this month.

The EPL is not applied to profits from activities outside extracting UK oil and gas, so it does not cover most of the two companies' profits from overseas.

A Treasury spokesperson said the windfall tax was being used to help families in the UK.

They said: "These funds are being used to hold down people's energy bills and fund one of the most generous cost of living packages in the world- worth £94bn, which is around £3,300 per household this year and last.”