Campaign groups say there is now an “overwhelming case” for the government to expand windfall taxes on fossil fuel companies after Shell and BP saw their profits double as oil and gas prices continue to soar.
Over the last quarter, Shell made £8bn in profits in the past three months, while BP revealed on Tuesday it had made £7.1bn over the same period – up from £2.9bn for the same quarter last year.
A 25 per cent windfall tax was introduced by Rishi Sunak when he was still chancellor in May. Known as the “energy profits levy”, it applies only to profits made from extracting UK oil and gas. However, it also incentivises further investment in the extraction of fossil fuels by allowing firms to apply for tax savings worth 91p of every £1 invested in new drilling efforts.
Shell has said it does not expect to pay any extra tax as a result as its investments in UK drilling mean it hasn’t made a net profit. BP has said it expects to pay just £800m.
The tax does not apply to other forms of energy production such as nuclear or renewable energy, but the government has also set out plans for an “energy price cap” on renewables, which will hit the profits of wind and solar energy producers, and which critics have said amounts to a windfall tax which could put off investment in clean energy, thereby worsening the energy crisis.
Between 2018 and 2021, BP received more in tax relief than it paid in taxes on its North Sea production, which campaigners have said amounts to subsidising the fossil fuel industry.
In total, BP has made profits of £23.4bn in the past year, which amounts to “a slap in the face” for millions of households facing hardship due to soaring bills as the cost of living crisis deepens, according to an analysis by international NGO Global Witness.
The organisation illustrated the scale of the profit, saying that the money, which BP made from its operations around the world, could pay for any one of the following:
The energy bills of 9.4 million British households
A third of the £68bn the UK government needs to help its citizens with high energy bills
Heat pumps for 1.6 million UK homes, that would protect families from energy price volatility
The energy bills of everyone on universal credit; plus emergency aid for all 19 million Yemenis suffering acute malnutrition as the country suffers its eighth year of war, plus emergency shelter for all of the victims of Pakistan’s climate crisis-caused floods – and still leave £9.3bn in profits for BP’s shareholders
Jonathan Noronha-Gant, senior fossil fuels campaigner at Global Witness, said: “Big fossil fuel firms making eye-watering profits is a slap in the face for the millions of citizens struggling to heat their homes, cook their meals or buy everyday essentials.
“Whose side is the government on? Brits facing financial hardships or an industry that’s making billions in profits off the current energy crisis?”
He added: “A proper windfall tax on the profits of big polluters is no longer a far cry, it is now a necessity. But the new UK government must also urgently put us on track for a rapid transition away from dirty fossil fuels and onto renewables and decent home insulation, so we can fix this broken energy system once and for all.”
Philip Evans, oil and gas campaigner for Greenpeace UK, said: “Another week, another £7.1bn banked by BP in profits, with billions to be paid out to investors. Meanwhile, the homes of the poorest households in the UK urgently need insulation, the growing numbers in fuel poverty need financial support, and further investment in cheap renewables could lower our bills permanently.
“As chancellor, [Rishi] Sunak imposed a windfall tax on these companies but gave them a loophole so big it turned into a huge tax break for more oil and gas. That won’t address the cost of living crisis, won’t provide energy security, and will only make the climate emergency worse.”
Friends of the Earth’s energy campaigner Sana Yusuf said the case for a “bigger, bolder windfall tax is now overwhelming”.
She said: “With the economy sinking, energy bills soaring and the climate crisis deepening, Rishi Sunak must surely act on the excessive profits that fossil fuel firms like BP are raking in.”
An expanded windfall tax on polluting fossil fuel firms “must address the ridiculous loophole that undermines the levy by enabling companies to pay the bare minimum if they invest in more planet-warming gas and oil projects”, she added.
The Independent has contacted BP and the government for comment.