Windfall tax con: Demand socialist nationalisation of big energy
Philip Stott
The recent Tory budget saw chancellor Jeremy Hunt announce a 12-month extension to the windfall tax on energy companies. The Energy Profits Levy (EPL) currently sits at 35% on top of the 40% corporation tax the companies are supposed to pay. All the main capitalist parties have been jockeying for position on the issue and some are split on it.
The Scottish Tory leader Douglas Ross has said he cannot support the extension of the EPL until 2029. Ross has been acting as a mouthpiece for big energy by claiming more tax equals job losses. He was of course silent when in the last few years tens of thousands of workers have been made redundant as oil bosses were slashing costs to boost profits. The Tories are desperate to exploit fears over jobs in the north east as part of his efforts to cling on to Tory seats in Scotland ahead of the general election.
The SNP opposed the tax extension as well for the same reasons as Ross; that it would hit jobs, underlining the nationalist leadership’s love affair with profiteering capitalism. Starmer’s Labour support the tax and have argued for an increase in the EPL from the current 35% to 38%. All parties support reducing the tax levy when and if energy prices fall.
The backdrop to the windfall tax introduced by Rishi Sunak in 2022 when he was chancellor was the rocketing energy prices and therefore profits of the big energy companies. It followed the inflationary spiral, the invasion of Ukraine and a rise in demand for energy following the Covid pandemic.
Bottom line is the energy companies have accumulated enormous profits. So much so that even the Tories could not pass up an opportunity to levy increased taxes on the oil and gas giants.
In practice, there are so many loopholes in the tax regime for the energy companies that they never actually have to pay the headline rates at all. The windfall tax was expected to raise £5 billion in the first year it was implemented in 2022/23. Barley half of that, £2.6 billion, was actually paid.
Before the EPL was levied in 2022 oil and gas companies were supposed to pay a 40% rate of tax. But according to a BBC report: “oil and gas firms have been able to reduce the amount of tax they pay by factoring in losses or spending on things like decommissioning North Sea oil platforms.”
As a result BP and Shell have paid almost no UK tax in recent years. Both firms received more money back from the UK government than they paid every year from 2015 to 2020 (except Shell in 2017). Between 2015 and 2021, Shell paid a negative tax bill of -£685m. For BP it was -£107m.
BP made £41 billion in global profits in the two years 2022 and 2023. Shell’s were £62 billion over the same period.
It was only the introduction of the windfall tax that has seen the oil and gas multinationals have to start paying some tax in the UK. But again this can be off-set by a range of loopholes.
According to the BBC report: “Companies are offered big tax benefits if they invest in oil and gas extraction. For every £100 they invest they can claim back £91.40 in tax relief. And if they spend £100 decarbonising the way they extract oil and gas they can claim up to £109.25 in tax benefits.”
The controversial Rosebank development north west of Shetland has seen the £3.1bn investment so far by the Norwegian state-owned company and Ithaca qualify for £2.9bn in tax relief. In other words it’s a state funded subsidy for big business.
Amidst an ever-growing climate emergency northing less than the full-scale nationalisation of the energy sector under workers’ control and management will be able to deliver the urgent investment in renewable alternatives that are essential.
At a time of record lay-offs and redundancies in the north sea, a socialist-led transition away from fossil fuels would also guarantee job security for workers. The current rigged system is designed to ensure the global energy giants continue to make billions while workers, communities and the environment pay the price.
