Oil and Gas Producers: Windfall Tax

Tim Loughton Excerpts

Tuesday 1st February 2022 Commons Chamber

[Edward Miliband]

The right hon. Gentleman and I differ somewhat on this. The real problem is that we have not gone far enough or fast enough on the green transition. The more we are subject to the volatility of fossil fuels—the prices are set internationally—the more we are at risk of the kind of crisis we are seeing at the moment.

If there is one principle that should get us through these tough times, it is that those with the broadest shoulders should bear the greatest burden. Britain’s families and businesses are facing the toughest times, but that is not true of everyone. For the oil and gas sector, the price spike has been a bonanza—a trebling of prices today compared with a year ago. Let us be clear about the effect that is having on oil and gas company profits.

Listen to Bernard Looney, the chief executive of BP. He says this: the rise in prices is a “cash machine” for his company. Those were his words—a “cash machine”. Let those words ring in the ears of right hon. and hon. Members in this House. Let us be clear about who is on the other side of the cash machine: the British people. In other words, it is an ATM from which the oil and gas companies collect billions and into which the British people pay—people like the man in Devon who could only afford to heat one room. He is one of the millions paying into the cash machine for BP.

Once the companies are withdrawing the cash from the cash machine, where is the unexpected windfall going? Let us not fall for the argument that may be made in this debate—that it is somehow going into investment or workers in the oil and gas sector. [Interruption.] The hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) says from a sedentary position that it is. Let me tell him that he is wrong. All the evidence is that the companies are so flush with cash that billions are being used to inflate the share price in buybacks from shareholders. BP did a share buyback of over £1 billion in August, but it was so overwhelmed with cash that it did another worth nearly £1 billion in November. Shell has done the same, with a £1.1 billion share buyback in December. But that is not enough: it says it will do another one, worth £4 billion, at pace, in 2022.

This is simply a redistribution of wealth from the energy bills of the British people—those who can least afford it—to the shareholders of those companies. The question before us, then, is one that has confronted previous Governments: should we do something about the situation or say that it is wrong to take account of the windfall in the tax decisions that we make? I say that it is not wrong to take account of it—it is fair and it is right and it is principled.

[Tim Loughton (East Worthing and Shoreham) (Con)]

The right hon. Gentleman is setting out the problem, but the trouble is that his solutions do not add up. Does he acknowledge that last year Shell and BP, the two largest oil and gas producers, posted a £26.9 billion and £22.5 billion loss respectively? How much would his windfall tax get from those situations? Does he also acknowledge that the biggest investments in renewable energy—not least hydrogen, into which hundreds of billions are being invested—come from companies such as BP and Shell, which we need to continue investing in alternative non-fossil fuels?

[Edward Miliband]

I will answer all the hon. Gentleman’s points. We would raise £1.2 billion from the windfall tax. I will come to this later in my speech, but the tax position is incredibly generous for companies, including Shell and BP. He says that their money is going into renewables, but I am afraid that he is not correct. Shell’s near-term plans involve investment of just £2 billion to £3 billion in low carbon activities and £8 billion on upstream fossil fuel production. It is just greenwash to say that these companies have somehow moved out of fossil fuels and into renewables. The truth is that when profits have risen by billions and billions and when billions are being paid out in share buybacks, it is not credible that somehow a one-off tax rise, taking just a small proportion of the windfall profits that these companies did not expect, will somehow lead to a collapse in investment.

There is a clear consensus that a windfall tax is the right thing to do. An overwhelming majority of people support it—including, I might point out to Government Members, three quarters of Conservative voters. I do not know what Conservative Members are waiting for: they should support a windfall tax because some of the people who vote for them—or used to vote for them, anyway—also support it. Leading charities have endorsed it and some Conservative Members, including the right hon. Member for Harlow (Robert Halfon) and the former business Minister the right hon. Member for Kingswood (Chris Skidmore), have supported it too.

Of course the oil and gas companies do not want the windfall tax to happen. Let us take their arguments head on. As I have said, the argument that the tax will lead to a collapse in investment is not credible given what the companies are doing with this windfall, and it also misunderstands the long-term basis of these companies’ investment plans. I should also point out that the companies would keep a significant proportion of the windfall, even under our proposals. It is an unexpected, unearned windfall, half of which they would keep.

Secondly, as I said to the hon. Member for East Worthing and Shoreham (Tim Loughton), the proposal comes against a backdrop of the incredibly generous tax position in the UK, which meant that BP and Shell actually paid no net tax at all between 2018 and 2020.

Thirdly, there is a wider context. [Interruption.] The hon. Member for East Worthing and Shoreham is muttering, from a sedentary position, that those companies are not making profits. Actually, they are forecast to make near-record profits this year, as the hon. Gentleman will see if he looks at what outside analysts are saying.

As I was saying, there is a wider context. The oil and gas sector provides important employment for our country and communities. We need a phased transition, but, as I said to the hon. Gentleman, the long-term answer to this crisis is not more reliance on fossil fuels. Indeed, the Business Secretary himself has said:

“the UK is still too reliant on fossil fuels.”—[Official Report, 20 September 2021; Vol. 701, c. 95.]

The answer must be instead to go further and faster on renewables, nuclear and other zero-carbon alternatives, but that is not what the fossil fuel companies are doing with their profits.

--- Later in debate ---

[Tim Loughton]

My hon. Friend is being far too gentle on the Labour party. Is what we have heard from it not completely disingenuous? It has suggested a cut in VAT, which of course we can only do because we are out of the EU, which it voted against leaving. That cut would bring in a 5% reduction against what will possibly be a 50% rise in energy prices, so it would be a drop in the ocean. In addition, we have just heard that the windfall tax on profits—profits that do not exist at the moment—would bring in £1.2 billion, another drop in the ocean of the problem that we need to address. The Labour party is trying to con us into thinking that that is the answer to the problem that we will have. It is not.

[Lee Rowley]

My hon. Friend makes a number of hugely important and powerful points.