Shell and BP to share in huge giveaway that will blow hole in gains from windfall tax: £7.5bn taxpayer handout for oil titans
- Energy giants already receive Treasury incentives to invest in the North Sea
- Fresh changes have been ushered in that will turbocharge the subsidies
- Plans introduced at same time as Government’s £5bn ‘windfall tax’
- City sources describe exceptionally high incentives as ‘beyond believable’
OIL and gas titans are set to reap a mammoth taxpayer giveaway of up to £7.5billion despite making record profits.
BP and Shell are among the firms that will benefit from new tax breaks, despite BP boss Bernard Looney comparing his firm to a ‘cash machine’.
Energy giants already receive Treasury incentives to invest in the North Sea, but fresh changes have been ushered in that will turbocharge the subsidies. The plans have been introduced at the same time as the Government’s £5billion ‘windfall tax’ – billed as taxing energy firms to help pay for the cost-of-living crisis.
Gathering storm: Energy giants already receive Treasury incentives to invest in the North Sea, but fresh changes have been ushered in that will turbocharge the subsidies
City sources described the exceptionally high incentives as ‘beyond believable’ and told The Mail on Sunday that they would drain money from public coffers, possibly without additional gain.
Dan Neidle, head of non-profit organisation Tax Policy Associate, described the policy as ‘just a handout to business’.
The plan comes amid a Government drive to boost Britain’s energy security after Russia’s war in Ukraine prompted a surge in gas and oil prices.
The new North Sea tax breaks nearly double the tax relief. The so-called ‘super-deduction’ means investing £100 in the North Sea ‘will cost companies only £8.75,’ according to the Institute for Fiscal Studies. The tax savings are likely to spark fury among families struggling to pay household bills due to the cost-of-living crisis.
Bank of England Governor Andrew Bailey warned last week that the UK will slide into recession this winter, fuelled by a startling inflation rise of 13 per cent.
The MoS has seen estimates that expose the eye-watering allowances for oil and gas firms investing in the North Sea. Analysts warned the incentive may not increase investment. They said taxpayers will fork out the £7.5billion over three and a half year under investment plans already in place.
News of the gigantic tax breaks, introduced by former Chancellor Rishi Sunak, emerged just days after British oil majors BP and Shell reported record-breaking performances. Last week, BP announced its second-quarter profits had more than trebled to a 14-year high, while Shell also announced its highest-ever profit for the three months to June.
This came after a grim forecast from energy consultant Cornwall Insight, which said average annual household energy bills could hit £3,615 from January.
A senior financial analyst, who asked to remain anonymous, said the Treasury regime had been designed to give oil and gas firms a ‘stupidly big encouragement’ to invest.
He said: ‘The Government is encouraging investment at a time when Russia is invading Ukraine and we say we want every last drop out of the North Sea. But the incentive to invest is beyond believable… it’s frightening. This new tax regime could easily turn something uneconomic [for the companies] into something that is very commercially attractive.’
Neidle questioned whether the incentive would have the desired effect of pumping more cash into the North Sea in the long-term. He said the relief only spans about three years and ‘is unlikely to incentivise much, if any, investment’. He said the result could be a ‘dead-weight’ cost to the taxpayer – meaning there is no additional investment in the North Sea, but there is a huge benefit financially to the firms.
The tax arrangements of oil giants operating in the UK have been under growing scrutiny in recent years. Company documents show the North Sea operations of BP and Shell have already benefited from huge tax repayments.
Tessa Khan, director of campaign group Uplift, said Britain’s tax regime ‘makes UK waters the most profitable in the world for new offshore oil and gas fields. This is a slap in the face to the British public, who continue to foot the bill for Government subsidies to the oil and gas industry and pours fuel on the fire of the climate crisis.’
The Government has defended its windfall tax plans, which it predicts will raise £5billion in its first year. It could raise billions more in the years until 2025.
The Treasury said: ‘As set out in the British Energy Security Strategy – with Putin’s invasion of Ukraine illustrating the merit of this – North Sea oil and gas are going to be crucial to the UK’s domestic energy supply and security for the foreseeable future, so it is right we continue to encourage investment there.’
BP said it expected to pay £1.25billion in tax this year, even before the windfall tax was included, and would invest up to £18billion this decade on top of its North Sea plans. Shell said in May that the company will be paying ‘hundreds of millions’ in tax in the UK in years to come.