The economic news, for most of us, remains bleak. Forecasters like the Bank of England are almost falling over themselves to stress how bad things could get – the Bank predicting the “longest recession on record” from next year onwards. Yet even as high prices stretch pay packets, and the Tories threaten another round of brutal austerity spending cuts, at least some people and some businesses are doing very well out of instability and rising prices.
It’s not a complicated situation. If prices have gone up, but most people’s wages and salaries haven’t, someone, somewhere must be making more money. That’s exactly what has happened. The 350 biggest companies on the London Stock Exchange saw their profits rise 73 per cent by the end of last year, compared with pre-pandemic levels. Official data from the Office for National Statistics shows that rising company profits account for nearly 60 per cent of the increase in prices in the first part of this year, but pay covers only 8 per cent.
The most obvious example of this profiteering has been in energy costs. Whether gas and electricity at home, or petrol prices for transport, double-digit inflation in energy prices has squeezed households’ living standards hard. It’s hard to avoid the costs of electricity, or gas to heat a home in winter and, for the more than 70 per cent of people outside London who have to commute via car, it’s hard to avoid skyrocketing petrol prices, too.
The flipside of those high prices has been exceptional profits for companies that can sell the oil and gas. Over this year, the fossil fuel giants have recorded some of the biggest quarterly profits in history. BP posted £7bn profits for the last three months. Shell made £8.2bn. Every last penny of these extreme profits has come from hard-pressed consumers and businesses at the other end of the pipeline. The companies have done nothing to warrant their bonanza, simply doing what they always do but collecting extra revenue from the side-effects of the war in Ukraine and Covid lockdowns.
It’s sometimes claimed these oil and gas profits go to British pensioners, because pension funds invest in oil companies, seeing them as a safe bet for future earnings. But research by the Common Wealth thinktank, digging into the figures on who owns what companies, found that just 0.2 per cent of British pension funds’ investment was in BP or Shell, the two largest UK-based oil companies. Pension funds today typically look to put their money in government bonds, rather than British businesses – including British oil companies. Squeezing oil company profits via taxes will make essentially zero difference to pensioners in Britain.
It’s no wonder even the Conservatives, a party not usually given to chasing down multinational profits, have introduced a short-term windfall tax, which Chancellor Jeremy Hunt is reportedly thinking of extending in his Autumn Statement.
This has got the fossil fuel corporations worried. They have been complaining to their preferred newspaper about how terribly unfair a windfall tax would be, telling the Financial Times that further tax rises would damage their “appetite” for future investment in the North Sea. Never mind their “appetite” – the rest of us are surely sick of their profiteering.
But even this special pleading, and the pretence that Britain has an unfair tax regime, doesn’t hold water. Figures from the International Monetary Fund, looking across the world’s largest oil-producing nations, shows that the UK has the lowest taxes on oil and gas production of any major producer – and that’s even with the windfall tax introduced. Before the windfall tax, oil companies faced just 39 per cent tax on the oil they sold – compared with 59 per cent in Australia, say, or 83 per cent in Norway. Even with the windfall tax, oil companies operating in the UK’s part of the North Sea face a tax rate below Norway, Saudi Arabia and Canada, among others.
The UK section of the North Sea, historically, has been a low-tax happy hunting ground for some of the largest companies on the planet to make super-profits. And if they can’t make high enough profits, the incredibly permissive tax regime is there to cut their taxes due to zero, as both Shell and BP have exploited in previous years.
Nor have successive governments used whatever tax revenues we get wisely – unlike Norway, whose Oil Fund, made up of money saved from their own North Sea oil and gas, is now so vast that it is estimated to own 1.5 per cent of all shares listed on the planet. This £1.6 trillion fund is the equivalent to around £214,000 for every man, woman, and child in the country – a solid guarantee of their future pensions. Britain could have had something similar, but instead of saving the money from when North Sea oil and gas came on stream in the late 1970s, Conservative governments at the time prioritised tax cuts for the richest.
So there is no excuse, today, for allowing another round of windfall profits to be thrown away – especially when those oil company profits are so obviously the result of rinsing ordinary consumers with high prices. Raising UK North Sea taxes to the levels of Norway would be another £33 billion a year – the sort of sum needed to begin to put the NHS back on its feet, say, rather than lining the pockets of shareholders.
James Meadway is an economist and director of the Progressive Economy Forum, an independent thinktank (progressiveeconomyforum.com)
Photo: Raising North Sea taxes would generate £33bn per year (Lukasz Z/Shutterstock)
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