Boris Johnson has said he will “look at” implementing a windfall tax on oil and gas companies as he faces increased pressure to address the rising cost of living.
After Shell and BP revealed record earnings due to higher oil and gas prices, Labour supports such a move. The Prime Minister expressed his disapproval to such a tax, but did not rule it out entirely.
Mr Johnson told LBC Radio that the disadvantage of such tariffs is that they discourage investment in the very things that they need to see them put in. He said they should be investing in new technology and new energy supplies for the UK.
When told that some company executives have stated that a tax would not stop them from investing in the UK, Mr Johnson answered, “Well, then, we’ll have to look into it.” What I’m saying is that I want them to make those investments – they have to – in new energy supply for our country.”
“I don’t like them,” the Prime Minister said when asked if he would rule them out completely, saying that he didn’t believe they’re the preferred way to see companies making significant investments back into the industry.
Justice minister Victoria Atkins has also stated that the government is considering the move.
“We will look at measures throughout this process,” she told Sky News, “and I think as a government we have shown during the epidemic that we will absolutely adjust and work on policies when difficulties occur.”
The one-time taxation would impact energy businesses that are profiting from sky-high prices while the world recovers from the epidemic and supply limits caused by the Ukraine conflict.
Those in favour of the proposal claim that the funds raised may be utilised to relieve some of the public’s financial stress. Energy businesses in Spain and Italy have already been hit with a windfall tax.
It comes as energy companies announced massive profit growth in the first quarter.
In the first three months of the year, BP had an underlying profit of £4.9 billion, while Shell made its highest-ever quarterly profit of £7.3 billion. BP stated last year that it has “more cash than we know what to do with.”
For North Sea oil and gas producers, Labour has proposed a ten-percentage-point rise in corporation tax.
The party claims that this will raise £1.2 billion, which will be used to assist families struggling to pay their bills after the energy price cap increased by 54% in April.
Opponents argue that oil and gas corporations already pay a higher rate of corporate tax than most other businesses, at 30% compared to 19% for most others.
They additionally pay a ten percent “supplementary charge,” making the industry taxed at more than twice the rate of a regular corporation.
The Last time a windfall tax was introduced was in 1997 by Labour’s last Prime Minister, Gordon Brown who introduced a windfall tax in his first Budget. He levied the tax on more than 30 companies including Power Utilities (in particular Scottish Power), Water Companies (United Utilities), Telephone companies such as BT and BAA Airline Operator, all of whom had been privatised since 1979 by previous Conservative Governments.
The Chancellor, Rishi Sunak has also not ruled out a possible implementation of a Windfall Tax on oil and gas companies like BP to generate income from these companies.