BP, a leading energy company, has recently reported record annual profits for the year 2022. This growth in profits has come about due to the surge in oil and gas prices, which was triggered by Russia’s invasion of Ukraine. The company’s profits more than doubled from $12.8 billion in the previous year to $27.7 billion in 2022. This news comes on the heels of other energy firms such as Shell, Exxon Mobil and Chevron, who have also reported strong profits.
However, these bumper profits have led to calls for the energy companies to pay more tax, as households struggle with rising energy bills. In response, the UK government introduced the Energy Profits Levy, which is a windfall tax on the profits made by energy companies. This tax was originally set at 25% but has now been increased to 35% and only applies to profits made from extracting UK oil and gas.
Impact of Windfall Tax on Energy Companies Including BP
The recent surge in profits made by energy companies like BP and Shell has led to calls for the companies to pay more taxes, as many households struggle with rising energy bills. In response, the UK government introduced the Energy Profits Levy, which is a windfall tax on the “extraordinary” profits made by energy companies. The rate was initially set at 25% but has now been increased to 35%. The tax only applies to profits made from extracting UK oil and gas. BP stated that its UK business, which accounts for less than 10% of its global profits, will pay $2.2bn in tax for 2022, including $700m due to the Energy Profits Levy.
According to Andrew Griffith, Economic Secretary to the Treasury, the windfall tax strikes the “right balance” between helping families with the cost of living and securing the UK’s energy supplies. The aim of the tax is to encourage re-investment of the sector’s profits back into the economy.
On the other hand, some experts believe that the high profits made by energy companies are temporary and will not last forever. Nick Butler, a visiting professor at Kings College and previously a senior executive at BP, stated that oil and gas prices would not remain “exceptionally high” forever. He added that the windfall profits made by these companies would not last until 2023.
Labour’s shadow climate secretary, Ed Miliband, called the profits made by energy companies “outrageous” and called on the government to increase the windfall tax. The UK government has taken steps to limit household energy bills, with the average home now paying £2,500 a year, although this is still more than double what it was a year ago. The cap on bills will rise to £3,000 from April, although analysts expect households to pay less due to a recent drop in gas prices.
Conclusion
The recent surge in profits made by energy companies like BP and Shell has led to calls for the companies to pay more taxes, especially as many households struggle with rising energy bills. The UK government has introduced the Energy Profits Levy, a windfall tax on the “extraordinary” profits made by energy companies, as a response to these calls. While some experts believe that the high profits made by energy companies are temporary, others have called for an increase in the windfall tax. The UK government has also taken steps to limit household energy bills, although they remain high compared to a year ago.