BP declines to reveal how much ‘loophole’ saved it in windfall tax
BP declined to reveal how much windfall tax it would have paid without an investment “loophole” when being questioned by MPs on Tuesday, while fellow energy group SSE raised concerns the levy “favours” oil and gas drilling over renewables projects.
Appearing before MPs on the business, energy and industrial strategy (BEIS) committee, the BP vice-president Matthew Williamson said he did not know how much the firm would have paid without an investment allowance that reduces the windfall tax due if a company invests in North Sea oil and gas extraction. He also declined to say how much BP was spending on renewable energy projects this year.
The chancellor, Jeremy Hunt, last week slashed the investment allowance. Companies can only reduce their windfall tax bill by 29% of funds invested in extraction, down from the previous 80% discount. Hunt also increased the tax rate of the levy from 25% to 35% and extended its lifetime by two years.
In a testy exchange, the BEIS committee chair, Darren Jones, asked: “If it wasn’t for the loophole that was put in for investment into drilling for further oil and gas, how much more tax would you have paid this financial year?”
Williamson replied: “Our tax and financial teams will be working that out so I don’t have an answer for that today.”
Jones also asked how the $8.5bn (£7.15bn) BP has earmarked to buy back its own shares compares with its investment in low carbon technology.
Williamson said: “All I can say is for this year we’re looking at approximately 30% of spend for non-hydrocarbon investment, I don’t have the breakdown for renewables.”
Jones said the questions had been sent to BP before the hearing and said he was “shocked” Williamson could not answer them. Jones asked whether Williamson had requested the numbers from his team. “No I did not,” Williamson said.
The scale of BP’s investment in renewables projects has been under the spotlight this year. The company has committed to spend £18bn in the UK by the end of the decade but has been urged to reinvest booming profits in greater spending on green energy.
BP invested £300m into renewables and “low carbon” projects in the first half of 2022 – the equivalent of just 2.5% of its £12.2bn profits.
BP said this month that it expected to pay $2.5bn as a result of the windfall tax, known as the energy profits levy, before it was updated by Hunt. Rival Shell caused anger when it said it had paid no windfall tax because of heavy spending on oil and gas drilling.
Separately, the chancellor introduced a 45% levy on electricity generators aimed at the “excess returns” seen by renewable and nuclear power companies as electricity is tied to soaring gas prices.
Catherine Raw, the managing director of the power firm SSE’s thermal division, told MPs the investment allowance for oil and gas firms risked Britain’s efforts to decarbonise the energy industry.
Raw said: “It feels like an unintended consequence and slightly counterintuitive that effectively investment by oil and gas companies is favoured to investment by renewables companies.”
Raw called for the government to speed up plans to help power firms build business models that incorporate hydrogen and carbon capture and storage (CCS) projects.
Asked whether the UK was on track to phase out “unabated gas”, without attached carbon storage project by 2035, Raw said: “If we continue at the pace we’re at today, the answer is probably no.”
She said: “When we look at our own fleet we see two power stations continue to operate post-2030.” She said the phase-out over other power stations would rely on the development of hydrogen and CCS.
Will Gardiner, the chief executive of Drax, was forced to defend the £11bn in renewable subsidies it is expected to have collected by 2027. The subsidy for the UK’s largest power station was called “utterly bizarre” by Dr Daniel Quiggin, a researcher at the Chatham House thinktank who also appeared before the committee.
Gardiner said:“We’ve reduced the emissions from 20m tonnes or more to around three and I think that’s a significant achievement for the UK and we’ve contributed to the decarbonisation effectively using the system the government has designed.”