BP chief executive Bernard Looney has rejected growing calls from the Labour Party for a windfall tax on North Sea fossil fuel operators, arguing that the measure could hurt investment in the region and compromise the country’s gas production.
With the continent suffering from shortening gas supplies and UK households facing eye-watering hikes in their energy bills this spring, Looney suggested it would be misguided to limit the ability to invest and boost gas output from the North Sea.
In an investor call on Wednesday, the oil and gas chief said: “The UK needs more gas, not less gas, right now and that’s going to require more investment, not less investment. A windfall isn’t probably going to incentivise more investment.”
Labour has proposed a £1.2bn windfall tax as part of a wider £6.6bn energy plan, where North Sea operators would face a ten per cent hike in corporation taxes over a 12-month window.
It argues the measure could shave a further £200 from household energy bills, amid historic volatility in the energy market which has seen Ofgem hike the consumer price 54 per cent to nearly £2,000 per year.
The fossil fuel giant is under pressure after rebounding from the pandemic with strong full-year results, amid a wide-scale energy crisis that has seen dozens of suppliers exit the market and the consumer price cap soar to nearly £2,000 per year.
Earlier today, BP posted annual profits of $12.8bn, powered by its strongest quarterly earnings since 2014, buoyed by sustained market rallies on both major oil benchmarks, and historic five-fold increases in wholesale gas prices last year.
It has also announced a further $1.5bn of buybacks, and has maintained its dividend at 5.46 cents per share.
The turnaround is remarkable, as the company suffered hefty losses of $5.7bn in 2020 as the pandemic wreaked havoc with the market.
Commenting on the results, shadow chancellor Rachel Reeves said: “It’s time for Labour’s plan for a one-off windfall tax on oil and gas producers to cut bills.”
This outlook has been echoed across the political progressive spectrum, and Liberal Democrat leader, Ed Davey has also pushed for a tax on the companies, describing it as a matter of “basic fairness.”
The clamour for government intervention follows rival Shell reporting bumper profits of $19.3bn last year, and an $8.5bn buyback scheme last week, when Shell’s chief executive Ben van Beurden also criticised calls for a windfall tax.
He said: “I’m not convinced that windfall taxes, popular though as they seem, will help us with supply, nor is it going to help us with demand.”
Looney has further argued that BP’s success would help fund the UK’s green energy transition, which would help drive down energy bills in the long-term.
In the company’s latest strategy update, Looney revealed plans to spend double the amount of money it invests in the UK through to the middle of the current decade.
Commenting on Net Zero funding plans, he added: “The vast majority of that investment will be into the energy transition; offshore wind in Scotland, offshore wind in the Irish Sea, hydrogen power, hydrogen at Net Zero Teesside for power, our charging network, the list goes on and on.”
Last week, Chancellor Rishi Sunak announced a £9bn package to reduce the burden on households but left North Sea companies untouched.
John Macdonald, director at the Adam Smith institute, described the proposals for a windfall tax as ‘economically illiterate’.
Speaking to City A.M. he said: “Labour’s proposal to impose one on successful energy companies like Shell might be superficially appealing, but in reality is more vindictive than effective, with costs of the tax likely passed onto consumers. A windfall tax on profits would make the UK energy market less attractive for investment, without which storage capacity, distribution networks, and generation become increasingly difficult, ultimately pushing prices up further.”