Shell and BP take part in huge giveaway that would blow profits from windfall tax breaks: £7.5bn taxpayer handout to oil titans
- Energy giants are already receiving Treasury incentives to invest in the North Sea
- New changes have been made that will speed up the subsidy
- Schemes launched at the same time as the government’s £5bn ‘unforeseen tax’
- City sources describe exceptionally high incentives as “more than credible”
OIL and gas titans set to give taxpayers up to £7.5billion in rebates despite record profits
BP and Shell are among the companies set to benefit from the new tax breaks, although BP CEO Bernard Looney likens his firm to an “ATM”.
The energy giant is already receiving Treasury Department incentives to invest in the North Sea but has made new changes that will speed up subsidies. The plans were introduced at the same time as the government’s £5bn “deadweight tax” – billed as a tax on energy companies to help fund the cost-of-living crisis.
Storming: Energy giants already have Treasury Department incentives to invest in the North Sea, but there are new changes that will accelerate subsidies
City sources called the extraordinarily high incentives “more than credible” and told The Mail on Sunday they would be taking money from the public purse, possibly with no additional benefits.
Dan Needle, head of the nonprofit Tax Policy Associate, described the policy as “just a handout for businesses.”
The plan comes amid a government campaign to improve Britain’s energy security after Russia’s war in Ukraine has pushed up gas and oil prices.
The new North Sea tax almost doubles the tax relief. According to the Institute for Fiscal Studies, the so-called “super deduction” means that a £100 investment in the North Sea “costs businesses just £8.75”. The tax cuts are likely to fuel anger from households struggling to pay household bills due to a life crisis.
Bank of England Governor Andrew Bailey warned last week that Britain would be hit by a recession this winter, fueled by inflation growth of a shocking 13 percent.
The MoS has looked at forecasts highlighting stunning allowances for oil and gas companies investing in the North Sea. Analysts warned that the stimulus may not boost investment. He said taxpayers would pay £7.5 billion over three and a half years as part of existing investment plans.
News of the huge tax breaks introduced by former Chancellor Rishi Sunak came just days after British oil majors BP and Shell reported record-breaking performances. Last week, BP said its second-quarter profit more than tripled to a 14-year high, while Shell also announced its highest profit in three months through June.
This comes after a dire forecast from energy consultants Cornwall Insight said the average annual household energy bill could reach £3,615 from January.
A senior financial analyst, who asked to remain anonymous, said the Treasury Department is designed to give oil and gas companies a “stupid big stimulus” to invest.
He said: “The government is encouraging investment at a time when Russia is attacking Ukraine and we say we want to get every last drop out of the North Sea. But the incentive to invest is incredible… it’s scary. This new tax system could easily do something unprofitable [for the companies] Something that is commercially very attractive.”
Needle questioned whether the stimulus would have the desired long-term effect of pumping more money into the North Sea. He said the relief is only for three years and “further investment, if any, is unlikely to be encouraged”. He said the result could be a “dead cost” for the taxpayer – meaning there is no additional investment in the North Sea but a huge financial gain for businesses.
The tax system of oil companies operating in the UK has come under scrutiny in recent years. Company documents show that BP and Shell’s North Sea operations have already benefited from hefty tax rebates.
Tessa Khan, director of campaign group Uplift, said the UK tax system “makes UK waters some of the most profitable in the world for new offshore oil and gas fields. It is a slap in the face to the British public who continue to bill government subsidies to the oil and gas industry and add fuel to the climate crisis.”
The Government has defended its unexpected tax plans, which it forecasts will bring in £5billion in the first year. In the years leading up to 2025, billions more could add up.
The Treasury said: “As set out in the UK energy security strategy – which reflects its merits with Putin’s invasion of Ukraine – oil and gas from the North Sea will be vital to the UK’s domestic energy supply and security for the foreseeable future. It is therefore appropriate that we will continue to encourage investment there.
BP expects to pay £1.25bn in taxes this year. Shell said in May it would pay “millions” in taxes in the UK over the coming years.
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