Shell’s chief executive Ben van Beurden has pushed back against rising demand for a windfall levy, to ease the burden on energy consumers amid soaring wholesale costs, historic price cap hikes, and widespread market carnage.
Speaking to reporters at the oil and gas giant’s results day conference, he questioned whether such a tax would have the desired effect of reducing people’s energy bills.
He explained: “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. But, of course, we stand ready to be in dialogue with the government on all measures.”
Shell has attracted fresh criticism following its bumper results, with the oil and gas giant passing analyst expectations with $6.4bn fourth-quarter profits, and annual earnings of nearly $20bn.
Labour has now revived calls for a one-off £1.2bn windfall tax on fossil fuel firms operating in the North Sea, paid by a year-long 10 per cent hike in corporation tax, as part of a wider £6.6bn proposal to shave £200 off household energy bills.
Following today’s announcement, shadow climate secretary Ed Miliband said: “With oil and gas profits booming in recent months because of the spike in energy prices, it is clearer than ever that the North Sea oil and gas producers who have made a fortune recently should be asked to contribute.”
Rachel Reeves, shadow chancellor, also pushed for the measures in the House of Commons, accusing Chancellor Rishi Sunak of burdening low-income households and vulnerable energy users with rising costs.
Alongside hefty profits, Shell has announced a fresh $8.5bn share buyback scheme, upping its dividends to four per cent – a sharp increase from the $3.5bn of share buybacks reported in 2021.
The company has benefitted from a revival in commodity markets as pandemic conditions have eased, amid rebounding demand and tightening supplies from key producers, alongside underinvestment across the oil industry.
Hargreaves Lansdown’s senior investment and markets analyst Susannah Streeter, was unsurprised the results and announced dividends have resulted in growing calls for new taxes.
She said: “The energy giants argue that the higher earnings will be ploughed back into investment into greener, cleaner forms of energy. But that argument is harder to wash given this announcement of higher dividends and the $8.5 billion share buyback scheme, which will take place in the first half of 2022.’’
The quarterly report is the first set of announced figures since Shell’s move to London, and the ditching of its dual share structure, after consistent friction between the fossil fuel group and the Dutch authorities over dividend taxes and imposed carbon emission reductions.
Populist tax plans contested by think tanks after price cap meddling causes market chaos
After its sweeping election success in 1997, Labour imposed a windfall tax on private utilities to fund social welfare and employment programmes.
The current proposals reflect growing sentiment, particularly across the left and progressive wings of politics, for the government to claw money back from fossil fuel companies to both reduce costs for households and boost the costs for consumers.
However, the government has consistently dismissed the idea of taxing North Sea oil companies, and continues to encourage investment into the sector.
Speaking to LBC Radio, Nadhim Zahawi, the education secretary and a former oil industry executive, said: “What Labour are putting out just doesn’t add up. A windfall tax on oil and gas companies that are already struggling in the North Sea is never going to cut it.”
The government greenlit the Abigail oil field in the North Sea earlier this week, which will be developed by Ithaca Energy.
Meanwhile, Chancellor Rishi Sunak has freshly unveiled a sweeping rebate scheme to reduce household energy bills by as much as £350 per year, but has left North Sea oil untouched by the measures.
The North Sea remains a highly attractive site, in a market where supply and security are increasingly crucial, and with countries looking to become less reliant on potentially volatile partners such as Russia.
John Macdonald, director of strategy at the Adam Smith Institute told City A.M. that any levies on the sector were ‘economically illiterate’.
He said: “Windfall taxes, or retroactively punishing successful businesses are not just illiberal. They are economically illiterate. 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.”
The director further suggested it could result in unintended consequences that could have a detrimental effect on the market.
Macdonald explained: “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. There are no easy answers for a long term fix to the UK’s energy woes. But now as always, a windfall tax is more about politics than practical solutions.
Andy Mayer, energy analyst at free market think tank the Institute of Economic Affairs, argued in favour of deregulating North Sea oil supplies, rather than increasing the tax burden on the industry.
Commenting on government interventions in the market, he said: “Tinkering with price controls, loans and clawback schemes will not change this, just delay and extend the pain, while undermining the central purpose of high price signals, to invest in better alternatives. These include simplifying the regulation of the North Sea, unblocking fracking, and developing strategic gas reserves.”
Meanwhile, Cornwall Insight and Utilita Energy founder Bill Bullen have both observed previous attempts to meddle in the market such as the consumer price cap have caused total carnage.
The mechanism has led to dozens of suppliers ceasing to trade as they have been unable to pass on costs to suppliers.
Dr Craig Lowrey, senior consultant at Cornwall Insight slammed the price cap today, suggesting it had explicitly failed to maintain market stability.
He explained: “The cap was never meant to be a permanent solution and today has shown that rather than protecting customers, the impact in the wholesale market over the last 12 months was simply deferred, leading to this significant increase announced today.”
Investec also reported in December that the households could be on the hook for £3.2bn to clean up the mess caused by the onboarding process through Ofgem’s supplier of last resort process.
Bulb Energy which has entered special administration, is also being propped up by £1.7bn in public money, the biggest state bailout since RBS collapsed in 2008.