Explained: What Is A Windfall Tax On Oil And Gas Companies?

Boris Johnson has rejected Labour's demand the levy be imposed to help cut people's energy bills.
Mike Kemp via Getty Images

Shell revealed on Thursday it tripled its profits over the last year, with the oil giant raking in £7.2bn.

Earlier this week BP reported profits of £5bn the first three months of the year, its highest quarterly earnings in more than a decade. The company admitted it had “more cash than we know what to do with”.

Meanwhile voters are struggling with steep rises in energy bills, with Boris Johnson being confronted with stories of pensioners riding the bus all day just to keep warm.

Labour has demanded the government impose a windfall tax on oil and gas companies in order to help people pay cope with the increase costs.

But the prime minister has repeatedly rejected the suggestion.

What is a windfall tax?

A windfall tax is a one-off tax on a company or group of companies. It is so named as it targets excess profits the firms had not expected to make or were responsible for.

In this case, oil and gas companies are raking in extra cash as a result of high energy prices in part due to Russia’s invasion of Ukraine.

What does Labour say?

Labour has proposed imposing a windfall tax on North Sea oil and gas producers.

Keir Starmer has said an extra 10 per cent should be added to their corporation tax bill for one year.

Corporation tax is a tax companies have to pay the government on their profits.

Labour has said the move would raise £1.2bn, with the money used to save people £600 on their bills.

Starmer has made it the centre piece of his local election campaign, saying: “The thing that has been keeping people up at night is worrying about paying their bills.”

What does the government say?

Boris Johnson has rebuffed calls from Labour, the Lib Dems and the SNP for the tax.

The prime minister has argued increasing taxes would “stop investment” by oil and gas firms in the UK, especially in new green power that is needed to help wean the UK off Russian energy.

“We haven’t invested enough in our own domestic energy and we need these big energy companies to step up to the plate and put their money into sustainable solutions, more green energy and to help keep costs down,” he told ITV this week.

“That is a much, much better solution than clobbering them and dissuading them, stopping them from making that investment.”

There does however appear to be something of a cabinet split. Rishi Sunak, the chancellor, has hinted he is open to the idea.

He told Mumsnet recently that a windfall tax was “of course” something he would “look at” if investments were not being made by firms. “Nothing is ever off the table in these things,” he added.

But what do the oil firms say?

Johnson’s claim energy firms did “not want” a windfall tax has also been undermined by none other than Bernard Looney, the chief executive of BP.

He told The Times that a windfall tax would not stop any projects they currently have planned. “There are none that we wouldn’t do,” he said.


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