Don’t be fooled: Rishi Sunak’s windfall tax will help oil and gas companies

Oil and gas companies will be allowed to largely escape the new tax by reinvesting their profits

Carla Denyer
Thursday 26 May 2022 17:07 BST
Clean energy can both reduce bills and tackle the climate crisis
Clean energy can both reduce bills and tackle the climate crisis (PA)

The chancellor has finally conceded the best way to help households is through a Windfall tax. But this “temporary levy” could end up helping fossil fuel companies and further penalising renewable energy companies in Britain.

For a start, Rishi Sunak hinted he wants to make all energy generators, including those in the renewable sector, liable too. But it is oil companies that are making eye-watering profits, not solar and wind energy companies. Shell’s profits tripled to over £7.3bn in the first quarter of this year alone.

Moreover, Rishi Sunak has said that for every £1 a company invests, they’ll get back 90 per cent in tax relief. Such an incentive makes no economic or environmental sense. These companies can largely escape the new tax by reinvesting their profits. And they are much more likely to invest in further oil and gas infrastructure – which will boost their profits – than clean energy. Investment in clean energy by oil and gas companies was about 1 per cent of their capital expenditure in 2020.

Instead, Rishi Sunak has lumped all forms of energy in the same boat, incentivising further oil and gas production and failing to boost clean energy. It is another missed opportunity to shape a clean green economy for the future. Just this week a senior safety consultant quit Shell citing greenwash and accusing the company of failing to wind down on fossil fuels.

Oil companies have already benefited from billions of pounds of tax breaks, tax relief and subsidies over the years. Shell and BP have effectively been paying zero corporation tax on oil and gas production in the North Sea. And taxpayers are picking up a bill of at least £18bn for decommissioning oil and gas infrastructure in the North Sea up to 2065.

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Clean energy can both reduce bills and tackle the climate crisis. In 2021, renewables were responsible for 29 per cent of electricity generated in the UK, which alone displaced around £6.1bn worth of gas, equivalent to £221 of gas per household. But the government is limiting new clean energy projects and we will all pay the price via higher energy bills next winter.

So the Tory version of a windfall tax is taking from the fossil fuel corporations with one hand but giving it back with the other, by incentivising more oil and gas production.

Greens have long called for a “dirty profits tax” on the most polluting fossil fuel companies, set at 35 per cent. The government is only going as far as 25 per cent. Crucially, a windfall tax – important as it is for helping households – must be a stepping stone for a carbon tax on polluting industries. This policy, which has 94 per cent public support, would drive the economy away from fossil fuels and high-carbon industries towards a cleaner country.

The chancellor’s windfall tax is a swing and a miss – failing to tackle the cost of living crisis and the climate emergency together.

Carla Denyer is co-leader of the Green Party of England and Wales. Before entering politics she worked as an engineer in the energy sector.

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