BP's investment pledge fails to quell calls for UK windfall tax

BP’s investment pledge fails to quell calls for UK windfall tax

BP failed to head off political clamour for a windfall tax on energy after highlighting at its annual meeting promises to invest all its profits from its North Sea oil and gas production over the next decade back into the UK.

One government official said chancellor Rishi Sunak wanted “significant new investment” from energy companies beyond statements from BP and Shell aimed at avoiding a windfall tax as they reported record quarterly profits last week.

BP chief executive Bernard Looney on Thursday told shareholders the company would reinvest “every pound that we make and hopefully more” with the aim of investing £18bn in Britain by the end of 2030.

But one senior government official said “It doesn’t appear that this [BP’s statement] is anything new.”

Sunak has put energy groups on notice that he will hit them with a windfall tax unless UK-based oil companies materially improve their existing plans to invest in Britain in the coming years.

Sunak on Thursday said he wanted to see fresh investment commitments by oil companies “soon”, adding: “If that doesn’t [materialise] then no options are off the table.”

Boris Johnson, prime minister, on Thursday said he did not like windfall taxes but refused four times to rule out the idea.

BP is one of the few producers in the North Sea to have published a list of planned investments, including £1bn in electric vehicle charging and about 6 gigawatts of offshore wind power. But it has faced criticism from the Treasury that these plans do not go far enough.

Looney said the £18bn investment plan represented 15 to 20 per cent of the group’s global capital expenditure, up from the 10 to 15 per cent that BP has historically deployed in the UK.

He added that these spending plans were not contingent on whether the UK government introduced a windfall tax, but that such a policy could hit the UK’s aim for greater energy security. “By definition, windfall taxes are unpredictable and could challenge investment in homegrown energy.”

The North Sea trade body Offshore Energies UK said it hoped to deliver spending commitments from oil and gas producers that would satisfy the government’s demands next week.

But OEUK chief executive Deirdre Michie told the Financial Times that companies needed time to adapt their long-term investment plans. “You can’t just turn on and off [the] taps that is not the way it works,” she said. “Decisions that are made today need to be made with confidence.”

Shell has said it expects to invest £20bn to £25bn into the UK energy system over the next decade, with at least 75 per cent intended for low-carbon projects, but has provided few further details.

Harbor Energy, the largest oil and gas producer in the North Sea, on Thursday declined to say how much money it would reinvest into the UK.

London-listed Serica Energy, which is responsible for about 5 per cent of the UK’s gas production, insisted it was “developing new investment programs to accelerate production from its assets”. But chief executive Mitch Flegg added that a windfall tax could impact its ability to “finance and invest in these programmes”.

Ministers are increasingly aware of the political optics of refusing to increase taxes on oil companies making record profits at a time when the public are facing a huge rise in energy bills as global energy prices soar. Shell last week reported quarterly adjusted earnings of $9.1bn, its highest on record, while BP’s underlying profits of $6.2bn were its best since 2008.

Labour’s shadow energy secretary Ed Miliband said: “The case for a windfall tax on the oil and gas giants making record profits while energy bills spiral for working people has been clear since Labor first proposed it in January. How much more time does this government need to make up its mind?”

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