Energy Giants (with even larger profits)

Energy giant BP has reported record annual profits for 2022 amid a fuel crisis that is causing a third of UK homes to struggle. The company’s profits came in at £23bn for the 2022 annual period, more than double its 2021 profits. This news comes a week after Shell reported its highest profits in 115 years, among the biggest in British corporate history. As unanimous bumper profits for energy firms are surfacing across the globe, it appears obscene to many that there is still heaped pressure on most households to meet their escalating energy bills. As opposition parties call out the profits as outrageous, criticism is rising towards the Government for letting energy firms off the hook.

Following the end of lockdown restrictions last year, energy prices began to rise again as firms struggled to match the sudden increase in demand for oil and gas with the necessary supply. However, this imbalance skyrocketed in March last year after the European Energy Embargo was enforced on Russia in response to its invasion of Ukraine. The price of Brent crude oil reached nearly $128 a barrel following the invasion, and still now stands at $83 a barrel despite a10 year average of $66/ barrel.  Despite the government currently limiting gas and electricity bills to £2500 per household, this is still more than twice what it was before Russia’s invasion, and the threshold is due to rise.

Despite the price of oil and gas falling and the record profits reaped by energy firms, energy prices are expected to soar again as Jeremy Hunt rejects pleas to halt the rise in the Government energy cap. Indeed, millions of UK households will see costs rise by another 40% in April as the cap is increased to £3000 per household on energy bills. As the additional £400 a month rebate that households have been receiving since October will also be removed, the effective rise will affect all households but those on the lowest incomes. As Shadow Chancellor Rachel Reeves stated, the ‘prospect of such a steep rise for most households is frightening, and shameful at a time where energy giants are reaping huge profits’. While Hunt has tried to justify this decision as a ‘more fairly targeted system of support’, demand has been growing for the Government to extend the lower cap period, with many questioning why the Government refuses to finance the scheme with higher windfall taxes on the firms- after all, they can afford it.

Many experts believe the windfall tax Rishi Sunak was eventually abashed into enforcing on energy companies last year could certainly be working far harder than it is, with many affected firms paying little to no tax despite the tax rate appearing aggressive on the surface. Currently the ‘profits levy’- a tax on extraordinary earnings of firms to help fund the Government’s efforts to lower household gas and electricity prices- stands at 35%, increased from the original set rate of 25%. As oil and gas firms also pay 30% corporation tax on their profits on top of a supplementary 10% rate, their total tax rate stands at a whopping 75%. However, companies are able to reduce the amount of tax they pay by investing in UK projects, spending on renewable investing and deducting losses on decommissioning North Sea energy plants from their taxable profits. It is no surprise then that despite paying $13bn in taxes globally last year, Shell did not expect to pay any UK tax this year once it had offset all its UK profits.

Analysts at Deutsche Bank anticipate that maintaining the £2’500 price cap from April would only cost the government an additional £4.5bn, predicting that due to falling gas prices the subsidy would only be needed until July. Moreover, it is also speculated that it could help to keep the rampant inflation rate at bay. As the obvious and easy answer appears to be to adapt the Profits Levy scheme so that it directly funnels more tax off energy firms in order to offset rising household costs, many agree with Paul Nowak, TUC general secretary, that ‘the time for excuses is over’. Despite Downing Street insisting that they ‘absolutely’ understand the anger at the outrageous profits, their actions imply otherwise. Instead, as Ed Miliband commented, their policies should reflect that  ‘energy companies profiteering off the back of an illegal war should be made to pay their fair share’.

Image: Zukiman Mohamad on Pexels

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