A windfall tax is a terrible idea – but BP would have been savvy to up investment not go for a buyback
It’s the middle of 2020, and the price of oil has tanked to almost single digits. Energy giants are being slammed by an almost total collapse in demand. BP’s share price is down 30 per cent on the year. Bernard Looney, the new boss of BP, is faced with the challenge of his business life as he begins to count the losses the pandemic was inflicting on a minute-by-minute basis.
As all this is happening, one thing is notably absent: specifically, political sympathy. The same was true when the firm booked an £18bn loss for the year. There were no impassioned calls for a bailout. No politician lined up to say that lockdowns and events outside of BP’s control had left this once proud company licking its wounds.
Two years forward, with the oil price recovered, and BP are reporting underlying profits at a very healthy clip, though obscured by the costly pull-out from Russia. The lack of sympathy has been replaced with the very real presence of anger.
Calls for a windfall tax are so far being mercifully ignored by Downing Street, on the grounds that it would – as it would – hit investment and do little for Britain’s reputation as business-friendly, though ask most foreign investors about that and they’re liable to scoff. Alas, BP can not rest easy: relying on this contortionist government to hold the line may prove unwise.
Where criticism is fair is around the decision to boost a share buyback, rather than putting it towards either capital investment or the firm’s worthy transition efforts. It is easier to argue, as we do, that energy companies are the ally not the enemy of the climate cause when they back it up with cold hard cash.
We will have to do this windfall tax dance again on Thursday, when Shell report their own bumper earnings. The most important number for both, though, is the cost of their Russian pullout. Doing the right thing can be costly, and for energy companies doubly so. That should be remembered alongside the criticism.