Comment

Energy bosses are provoking Sunak into another ruinous tax raid

BP chief executive may live to regret calling his company a 'cash machine'

You've got to hand it to the bosses of Britain’s energy giants. The response of the industry’s top figures to growing calls from the Labour Party, trade unions, and eco-activists for a windfall tax has been so risible that a Conservative Government is now said to be warming to the idea, having repeatedly ruled it out.

If ministers change their minds and conduct a profit raid on BP and Shell to help alleviate the cost of living crisis - and reports suggest this is now under serious consideration - then the two companies will be remembered for scoring one of the greatest own goals in modern corporate history.

It’s a u-turn that the Government has been desperately trying to avoid. The Prime Minister warned only last week that a tax grab could put the UK’s future energy security at risk. And on Thursday, Boris Johnson again signalled his opposition to the move, reiterating his belief, in an interview with LBC radio, that it would “deter investment”. 

Kwasi Kwarteng even went to the trouble of handing the oil producers a gift-wrapped opportunity to avoid the Treasury’s grasp. If they were able to provide a clear plan to spend their profits to accelerate domestic energy production and “bring down consumer bills in the long term” then BP, Shell, and other North Sea players could count on “the UK Government's ongoing support”, the Business Secretary said. In other words, they would be spared from a regressive windfall tax. 

That was a mere 10 days ago. And now? Officials are said to be so incensed by the behaviour of the industry’s leading names at a time when horror stories of one pensioner riding the bus to keep warm and another praying to stay in hospital rather than go home to a cold house dominate the headlines, that a windfall tax is on the table. 

The turning point was clearly BP boss Bernard Looney’s admission, on the back of the company’s biggest quarterly profits in a decade, that a tax wouldn’t alter BP’s investment plans.

It’s the equivalent of handing a box of matches to an arsonist so that they can burn down your house.

An attempt to change tack at BP’s annual general meeting, where Looney suggested that future additional investment would be less likely if a tax is imposed, is unlikely to cut much ice. As one government source is quoted as saying before Looney’s latest intervention: “It felt like he was goading us.”

Quite, and not for the first time. The roots of the current backlash can be traced back to last November and Looney’s boast that BP was “a cash machine” at a time of high oil and gas prices but growing financial difficulty for millions of families. 

Shell has proven no more politically adept. In February, on the very same day that households up and down the country discovered that their energy bills were heading for a 50pc, and the Bank of England was warning of record squeeze on earnings, Shell unveiled a quadrupling of profits and a bumper payout for shareholders. Chief Ben van Beurden sounded cock-a-hoop. It had been “a momentous year”, he declared.

Nor did it help that Kwarteng’s olive branch was met with unconvincing attempts to repackage existing investment projects as new plans that would strengthen the UK’s attempts to become less exposed to the oscillations of global oil and gas markets. BP’s decision to lavish billions of pounds on investors in the form of dividends and buybacks was another massive blunder.

It’s almost as if the industry is so resigned to a windfall tax that it can’t be bothered to put up a fight. Perhaps those at the top have even conceded that it would be fair cop given the profits bonanza that has taken place recently. 

The words of other business figures have hardly helped. In a deeply unfortunate choice of words, Centrica boss Chris O’Shea likened a windfall tax to “burning the furniture to stay warm”, while Tesco chairman John Allan staged a remarkable intervention. The case for one that is “fed back to those most in need of help with energy prices” was “overwhelming” Allan said.

Beyond punishing arrogant industry executives for their crass comments, you can see the appeal of a measure that has public backing and enables a cash-strapped Cabinet desperate to balance the books to avoid pushing public borrowing even higher.

It speaks to the growing impression that this is a Government that is either short of ideas when it comes to tackling the cost of living squeeze, or is simply reluctant to act.

Even now, as the latest data clearly shows that the UK economy is going backwards, the best that the Prime Minister can offer is empty platitudes about how it is “a tough time” for families and “we will get through” it. 

How, exactly, is anyone’s guess, and that is precisely the problem: the overwhelming sense is of a “cross our fingers and hope for the best” approach rather than any tangible action.

But the urge to resort to gesture politics such as a windfall tax should be resisted. We are in an environment where many politicians, including some on the Tory backbenches, are feverishly searching for a bad guy to deflect attention from themselves.

More importantly, the logic remains flawed. The impact would be negligible, even on Labour’s revised figures. Though current investment plans might not be affected, there’s a reasonable argument that it could derail future initiatives. 

As O’Shea pointed out, if investors are hit with a windfall tax, they will demand “higher returns to compensate”, making projects far harder to develop. Another knock-on effect could be more expensive household bills as producers seek to pass on the increased costs.

But if ministers do buckle to pressure, then BP and Shell really only have themselves to blame.