London (CNN Business)News that Britain’s biggest oil companies made $32 billion in profit last year is stoking calls for the UK government to impose a temporary tax on their earnings to help households pay soaring energy bills.
Profits at both companies have been boosted by a huge rebound in oil and natural gas prices after they collapsed at the start of the pandemic. The bumper earnings have allowed them to accelerate investments in lower carbon and renewable energy projects while also handing back billions of dollars to investors in the form of dividends and share buybacks.
Between them, BP and Shell spent $7.7 billion buying back shares last year, and the windfall for investors looks set to continue.
BP said it expected to be able to deliver share buybacks of $4 billion per year, while Shell announced plans to hand back $8.5 billion to shareholders in the first half of 2022, including proceeds from last year’s sale of its assets in the Permian Basin in the United States.
The bumper profits coincide with the announcement that energy bills for most UK households will rise by 54% in April, fueling a cost-of-living crisis that the Bank of England has forecast will lead to the biggest drop in disposable incomes in decades.
Anti-poverty campaigners and opposition politicians have been calling for weeks for Boris Johnson’s Conservative government to introduce a one-off levy on oil and gas companies to fund a cut in sales tax on energy bills and financial relief for the poorest households who are already struggling with 30-year high inflation.
UK Chancellor Rishi Sunak tried soften the blow of rising gas and electricity bills last week by spreading the pain over a period of years. The finance minister also announced a £150 ($204) reduction in local taxes for about 20 million households.
Despite the measures most households will still be left paying hundreds of pounds more to heat and light their homes. The Joseph Rowntree Foundation said some families on low incomes would face annual bills as high as £2,326 ($3,152) from April, while the Resolution Foundation warned that the number of households in “fuel stress” — those spending more than 10% of the family budget on energy -— would double to 5 million.
“The Chancellor’s energy plans last week left families more worried than ever,” tweeted Labour Party spokesperson Rachel Reeves on Tuesday. “It’s time for Labour’s plan for a one off windfall tax on oil & gas producers to cut bills.”
Reeves has said that rate of corporate tax the companies pay should be increased by 10 percentage points for a year. The additional revenue would be spent on eliminating the 5% sales tax on energy for a year. Labour would also increase energy subsidies for the poorest households to £400 ($545) per year from £140 ($190).
Windfall taxes have been used in the past by British governments of the left and right, but there’s no sign that Johnson and Sunak are about to adopt the Labour Party proposal.
Industry group OGUK, which represents UK oil and gas producers including Shell and BP, said last month that a windfall tax would make energy companies less likely to invest in the country, causing “irreparable damage to the industry” that would “leave consumers even more exposed to global shortages.”