A treasury minister has hinted at the possibility of a windfall tax being placed on oil and gas companies. The policy has significant support from opposition parties in parliament.
The revenue generated from the tax would fund help for the hardest-hit households in the current cost of living crisis.
Government ‘cannot rule out a windfall tax on oil and gas companies’
In a BBC Radio segment, the chief secretary to the Treasury, Simon Clarke, claimed: “We are looking at the situation with real urgency and intent.”
A windfall tax is a one-off tax imposed by a government on a group of companies. It is meant to target firms that make a large amount of profit in a short amount of time, typically from an event out of their control.
The price of electricity, gas and other fuels within CPI measurement is already 69.6% higher than a year ago. With further increases expected in October, there is growing concern over the impact that rising prices of essentials will have on houses in the UK.
Oil and gas profits have soared
Rising energy prices globally have boosted the profits of oil and gas companies, many of which have announced record quarterly profits. Exxon Mobil recently announced revenues of $5.5bn in the first quarter of 2022 alone. BP announced an underlying replacement cost profit of $6.2bn in Q1 2022, while Shell announced adjusted earnings of $9.1bn in the same time period. This illustrates the prosperity that oil and gas firms are experiencing in the current economic climate.
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Oil and gas companies benefitted greatly from the Covid-19 pandemic and the subsequent market movements. Additionally, the Russian invasion of Ukraine has created upward movements in the oil, gas and fuel markets.
The rise in prices and the nature of oil and gas mean that increasing sums of money are transferred from households to multinational companies.
A windfall tax will aim to ‘correct’ this and redistribute excess profits from the oil companies to households that are facing rising costs in other areas too.
An increase of 10% in the tax rate faced by oil companies would raise an estimated £2bn.
Labour, the Liberal Democrats and the SNP have continuously and openly supported the idea of a windfall tax on oil and gas companies. However, it remains to be seen if the government will act.
It is thought that a windfall tax would not prove popular among the Conservative party due to its business-friendly approach and reputation. Clarke stated a windfall tax was not a move he was ‘philosophically attracted’ to.
In the current economic climate, the government may be forced to act despite their inhibitions.