...By Lola Smith for TDPel Media.
Energy company BP has announced that its first-quarter underlying profits were $5bn (£4bn), surpassing analysts’ forecasts of $4.3bn, despite lower energy prices.
This is the second-best Q1 result since 2012, behind 2021’s $6.2bn.
The announcement has reignited discussions around windfall gains by oil and gas firms.
Harbour Energy, an energy producer, previously said that the windfall tax “all but wiped out” its profits, which had surged from $315m (£265m) in 2021 to $2.5bn (£2.1bn) in 2022.
However, after tax, the company’s profits fell from $101m (£85m) in 2021 to $8m (£6.7m) in 2022.
CEO Linda Cook stated that the UK energy profits levy, which applies irrespective of actual or realised commodity prices, has “disproportionately impacted” UK-focused independent oil and gas companies.
Windfall Tax Explained
A windfall tax is a one-off tax imposed by the government on a company or a group of companies when they benefit from something outside their control.
Energy companies are benefiting from increased demand for energy following the pandemic and Russia’s invasion of Ukraine.
Centrica, the owner of British Gas, revealed it made record profits of more than £3.3bn last year, while BP’s annual profits more than doubled to £23bn in 2022, and Shell reported a £32.2bn profit, the largest in its 115-year history.
Calls for Windfall Tax
Shadow Secretary of State for Climate Change and Net Zero, Ed Miliband, has called for a windfall tax to bring down energy prices.
Last year, he stated that “the government shamefully refuses to act with a windfall tax to bring down bills.”
Other Labour MPs, such as Richard Burgon and Nadia Whittoms, have also called for a windfall tax to prevent oil and gas companies from profiteering at the expense of ordinary people.
Greenpeace UK’s oil and gas campaigner, Philip Evans, has argued that using some of the profits made by oil and gas firms to improve the energy efficiency of homes would help tackle both the climate crisis and cost-of-living issues.
In the Autumn Budget, Chancellor Jeremy Hunt stated that he would increase the windfall tax paid by energy companies, as long as it was temporary and did not discourage investment.
He said that from January 1, 2023, until March 2028, the government would increase the Energy Profits Levy from 25% to 35% and introduce a temporary 45% levy on electricity generators.
The chancellor believes that these measures will raise £14bn next year.
Analysis and Commentaries
BP’s strong Q1 profits have sparked a renewed debate around windfall gains by oil and gas companies, with many politicians and campaigners calling for a windfall tax to be placed on energy giants to support households struggling during the cost-of-living crisis.
However, there is no consensus on the issue, with some arguing that windfall taxes discourage investment and innovation, while others believe that they are necessary to prevent companies from profiting at the expense of consumers.
The government’s response has been to increase the Energy Profits Levy and introduce a temporary levy on electricity generators, with the chancellor arguing that these measures will raise £14bn next year.
However, critics have argued that these measures are not enough and that a windfall tax is necessary to address the issue of rising energy prices.
Ultimately, the question of whether or not to impose a windfall tax on oil and gas companies is a complex