Companies like Shell and BP have posted huge profits while millions of Britons struggle with the rising cost of living, driven in part by increased energy bills. This week Boris Johnson refused to rule out implementing a windfall tax, and the Chancellor Rishi Sunak has also failed to say the Goverment won’t use one.
Tensions came to a head during Prime Minister’s Questions, which Labour used to further drill Mr Johnson on the lack of help he has implementing for struggling families across the UK.
Labour have argued that the money made from a windfall tax should be used to help Brits pay their bills.
Mr Johnson said: “We will look at measures, we will look at all the measures that we need to take, to get people through to the other side.
“But the only reason we can do that is because we took the tough decisions that were necessary during the pandemic.”
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Is a windfall tax a good idea?
Jamie Maddock, equity research analyst at Quilter Cheviot, argues that while in principal a windfall tax is an attractive idea, it may not have the desired results.
He told Express.co.uk: “The idea of a windfall tax on oil and gas producers is politically extremely attractive, but in reality, is a complex issue and may not be quite as effective as hoped.
“You firstly have the issue with whom to tax. Changing the corporate tax rate would bring many services that have not benefitted in the same way as oil and gas production into scope, and thus be quite penal on some firms.
“Instead, the Government could look at ways to change it in such a way that the increased tax take only applies at the oil and gas field production level as opposed to targeting the corporate tax rate.
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“The second big issue, whether or not this windfall tax leads to a reduction in investment from oil and gas companies remains to be seen.”
Rishi Sunak has vouched for the investment made by energy companies in the UK.
Mr Sunak said: “What I want to see is significant investment back into the UK economy to support jobs, to support energy security, and I want to see that investment soon.”
Mr Maddock continued: ”These companies are transitioning away from fossil fuels and are loathe to increase conventional fossil fuel-related spending particularly after having had to stop North Sea oil and gas investment only recently after being put under significant political and societal pressure.
“They are very much increasing their spend in low carbon energy to ensure they can deliver net-zero by 2050.
“As a result, it’s unlikely a windfall tax would deter conventional energy or renewable energy project investment by the oil majors, however, it could potentially lessen the ability of mid-size independents to invest assuming it doesn’t exclude them.
“Finally, while a windfall tax could raise much-needed taxes to mitigate the impact of the higher fuel and power prices, and help solve a political headache, due to the international nature of these companies it may not raise as much as is hoped.
“The figure will very unlikely be in the billions hoped for by some.”
Labour has estimated, based on estimating future North Sea profits based on tax receipts for 2022/23 projected by the Office for Budget Responsibility, suggest that total profits for the year will be £19.5 billion.
Mr Maddock said: “The good news for consumers is that due to oil and gas companies’ products being tied to international benchmarks, it is unlikely they could pass the cost on to the end-user.
“The only exception to this would be domestic fuel, for example, petrol and diesel, so we could still see higher pump prices as a result of any windfall tax, but general energy prices should be unaffected.”
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