(qlmbusinessnews.com via theguardian.com – – Tue, 2nd Aug 2022) London, Uk – –
Labour says government is ‘totally wrong’ to give tax breaks to oil companies amid cost of living crisis.
BP’s first-quarter profit was already its highest for more than a decade. Energy bills have been a key contributor to inflation, experts say.
BP will hand billions of pounds to shareholders after tripling its profits to nearly £7bn in the second quarter of the year amid high oil prices during Russia’s invasion of Ukraine, even as families struggle in a cost of living crisis.
The FTSE 100 oil company on Tuesday said its preferred measure of profit, which it describes as its underlying replacement cost profit, rose to $8.5bn (£6.9bn) between April and June. That is up from $6.2bn in the first three months of the year, and three times BP’s underlying profits of $2.8bn in the second quarter of 2021.
It was the second highest quarterly profit in BP’s history, behind only its $8.8bn underlying profit in the summer of 2008.
Rachel Reeves, the shadow chancellor, said the “eye-watering profits” showed that the government was “totally wrong” to have given significant tax breaks to oil companies. However, the government’s Brexit opportunities minister, Jacob Rees-Mogg, said he was not in favour of an extra windfall tax.
BP also said it would hand investors $3.5bn through a share buyback programme, while it increased its total dividend payout by 10% to about $1.1bn.
Oil companies in the UK and beyond have enjoyed booming earnings in recent months on the back of rising energy prices as households around the world have struggled with soaring bills. As Russia’s invasion grinds on, the research firm Cornwall Insight predicts the energy price cap on bills in Great Britain is on track to rise to £3,615 a year from January .
Shell last week reported record quarterly profits of nearly £10bn between April and June, while the British Gas owner, Centrica, made operating profits of £1.3bn, most of which came from its oil and gas drilling division. Shell and France’s Total last week said they would also give shareholders billions of dollars in share buybacks and dividends.
BP said its huge profits were caused by higher refining margins and “continuing exceptional oil trading performance”.
The company was forced to write down the value of its investments in Russia by $24bn in the first quarter, but higher oil prices have made up for much of the lost ground. The strong cashflows have allowed it to cut its debt pile, in a further boost to investors.
BP’s share price increased by 4% on Tuesday morning.
Energy bills have been an important contributor to inflation, which has risen to a 40-year high of 9.4% in the UK. Several forecasters believe inflation will move above 10% in the coming months.
The UK government belatedly responded to political pressure amid soaring energy prices with a windfall tax on oil companies’ “extraordinary profits”. However, the 25% tax, known as the energy profits levy, did not come into force until 14 July, meaning that it does not apply to profits made by BP or other oil companies during the second quarter.
Reeves criticised the government for at the same time giving the oil companies 80% tax breaks for new investments that reduce their tax bill. She said Labour would use extra cash from abolishing the tax breaks for a “green energy sprint” instead, as well as for more home insulation to cut energy use.
“People are worried sick about energy prices rising again in the autumn, but yet again we see eye-watering profits for oil and gas producers,” she said.
“Labour argued for months for a windfall tax on these companies to help bring bills down, but when the Tories finally U-turned they decided to hand billions of pounds back to producers in tax breaks. That is totally wrong.”
Rees-Mogg told LBC radio: “I’m not in favour of windfall taxes. The energy industry is enormously cyclical. You need to have a profitable oil sector so it can invest in extracting energy.”
The BP chief executive, Bernard Looney, declined to respond directly to the criticisms on Tuesday morning.
A spokeswoman for BP said the company expected to pay £1.9bn in UK tax in 2022, after it added an $800m charge on Tuesday to account for the energy profits levy. She said the company has invested twice the amount it has returned to shareholders, and that many of those investments in oil and renewables will build a more reliable energy system that will cut bills down the line.
BP reports its own replacement cost profit measure to indicate its profitability before taking into account swings in the value of the oil it has in storage.
The UK government was approached for comment.
By Jasper Jolly