Well, here we go: BP announces a hefty profit and the siren call is raised – “let there be a windfall tax on energy company profits!” Maybe there is some logic in that, but we’ll get to that in a moment. First, just let’s consider that two of the loudest voices screeching are those of former energy ministers, Ed Milliband and Ed Davey. Former energy ministers? Surely they’d know what they are talking about?
Sadly, as I have pointed out before – many times – the UK has not had a recognisable energy security policy since the halcyon days of huge North Sea production. Those two I’ve mentioned didn’t really contribute anything; they knelt and kissed the hem of the robe of Greta Thunberg, and between the three of them there is probably not much more scientific knowledge than any other random selection of school truant and Westminster MPs – not much, then.
So, electricity, oil and gas prices have risen substantially since the Russian invasion of Ukraine added another dimension to a world whose energy costs were already rising. BP – and undoubtedly pretty much every other well-run oil company – have seen large profits result from those price rises, and their operations in trading oil. Couldn’t some of that ‘excess’ profit be seized as a one-off extra tax, to enable the Government to subsidise energy bills for the most needy amongst the population?
It’s not that simple. North Sea oil production is already the most highly-taxed part of the British economy. We only have to look back a year to the collapse in oil prices during the slowdown in consumption caused by the covid pandemic to see BP making a substantial loss; did anybody propose that the taxpayer should compensate them then? Of course not. But an economic model that effectively would privatise losses and socialise profits is not sustainable – certainly not if you want to see investment in your economy.
Just a final point. Bernard Looney (BP CEO) was asked if a windfall tax would cause the company to stop its current investment programme in the UK. The answer was no, but to those who take this as meaning that the tax would have no long-term effect, understand that that was the wrong question. The current investment programme is already budgeted and will not be stopped, because the sort of major projects BP have in the pipeline are a long time in the planning, and cannot simply be switched on and off. What would be at risk, though, is the future – why would the oil companies commit to future, new investment if they knew that their tax burden could be retrospectively (because a windfall tax would be retrospective) substantially increased?
This issue is really not difficult to understand, but sadly the political class – urged on by their respective cheerleaders in the media – are far more interested in whether cake equals curry, or beer equals singing happy birthday. That’s much more important than energy security, isn’t it? After all, we’ve been able to ignore that for years, so it can’t really be that important, can it????????