U.K. plans energy windfall tax
It aims to strengthen economy with firms’ record profits
LONDON — Major oil and gas companies have raked in multibillion-dollar profits at unheard-of levels. And households around the world are reeling from soaring energy prices, while governments are struggling with outsize spending and slowing economic growth.
On Thursday, the British government tried to close the gap in those inequities by announcing additional taxes to capture energy companies’ windfall profits and use the money to defray the staggering cost of energy bills — similar to what governments across Europe have done and President Joe Biden has threatened to propose.
The logic seems straightforward. Energy suppliers are benefiting from an unexpected bonanza because of Europe’s sudden move away from Russia’s gas and oil after its February invasion of Ukraine, as opposed to any savvy strategy by the companies themselves.
Shell, based in London, recently reported that it had earned $20 billion in just six months, its biggest haul on record, while BP earned $16.6 billion. TotalEnergies, based in Paris, reported profits of nearly $29 billion over the same period. American energy companies are also taking in record profit. Net income for the world’s oil and gas suppliers will reach $4 trillion, the International Energy Agency estimated, double last year’s total.
Such staggering figures spurred United Nations Secretary-General Antonio Guterres to “urge all governments to tax these excessive profits and use the funds to support the most vulnerable people through these difficult times.”
Yet there is fierce debate over whether imposing an extra tax on windfall profits to subsidize energy users would ultimately worsen the problem, rather than solve it: Lower profits could discourage suppliers from producing more energy, while lower prices could encourage consumers to use more.
Such warnings, however, have done little to deter European governments from seeking to plug cavernous budget holes with some of the record piles of cash that energy companies have accumulated.
On Thursday, Jeremy Hunt, Britain’s chancellor of the exchequer, announced that he would raise $16.5 billion next year by increasing the windfall tax on oil and gas companies to 35% from 25% and introducing a temporary 45% levy on electricity producers.
Many of these producers — including those that use solar, wind and nuclear power — have enjoyed enormous profits even though their costs haven’t increased.
The European Union last month announced a temporary tax — euphemistically labeled a “solidarity contribution” — on some fossil fuel producers. An additional 33% levy will apply to “surplus” profits and is expected to raise $145 billion. There is also a cap on electricity profits.
Individual nations have gone further. Last week, the Czech Parliament approved a measure to impose a 60% tax on energy companies’ and banks’ windfall profits.
Germany is considering taxing by 90% profits that electricity companies generated above the cost of production.
Biden, too, accusing major oil and gas companies of wartime profiteering, has said he wants a new windfall tax unless the companies increase production, although such a proposal is unlikely to win congressional approval.
Although many energy companies have challenged particular tax proposals, others have conceded such a policy may now be inevitable. “I think we have to accept it and we have to embrace it,” Ben van Beurden, the departing CEO of Shell, said after announcing the company’s quarterly profits in September.
Critics also argue that windfall taxes, which tend to apply only to profits earned within a country’s borders, hurt domestic energy production.