Oil giant Shell is fighting calls for a windfall tax after it recorded the biggest profits by a British company to date. The £9,4-billion earned in 2004 from oil and gas — £1-million an hour and equal to nearly 1% of the United Kingdom’s gross domestic product — came after the prices of UK domestic gas, electricity and petrol soared.
Consumer groups, environmentalists and trade unions described the figures as ”obscene” but Shell warned it could cut investment in the North Sea if there was any attempt to tax it more heavily.
Windfall taxes were last imposed in 1997, after Prime Minister Tony Blair’s incoming Labour government had included a proposal to tax UK utility companies in its election manifesto.
Calls for one-off taxes on other companies are likely to increase in the next few weeks as many of Britain’s biggest businesses report record profits. Banking group HSBC is predicted to match Shell’s profits, while Britain’s big five banks collectively will make £30-billion — 16% more than last year. The five are HSBC, Royal Bank of Scotland, Barclays, HBOS and Lloyds TSB.
In 2003 Barclays chairperson Matt Barrett told a UK House of Commons select committee: ”I don’t think I know what excess profits means.”
Meanwhile, BP reported a 50% rise in profits to £8,5-billion and its chief executive, Lord John Browne, has already described the company’s cashflow as ”astonishing”. In April supermarket chain Tesco will reach £2-billion, the most ever by a British retailer, and in the same month cellphone operator Vodafone is forecast to smash Shell’s record by becoming the first British company to pass £10-billion.
So far, the British government appears to have set its face against further windfall taxes. Last week Economic Secretary John Healey told MPs that firms should have to ”pay a proper price” for the right to make money from the UK’s North Sea oil reserves, but denied they would have to pay more than the £6-billion already expected to be recouped for the taxpayer. ”We have no plans to introduce a windfall tax on oil companies,” he insisted.
The pressure on Shell was intensified by the scale of its ready cash. It has £17,5-billion in cash or equivalent, and now plans to hand up to half of it to its shareholders over the next 12 months. One of the biggest beneficiaries will be UK pension funds, the main owners of most British companies. They would be deeply opposed to any government move that would divert cash from their coffers.
The enormous earnings of Shell and BP are mainly the result of soaring crude oil prices, which have rocketed to nearly $50 a barrel. Rival ExxonMobil last week reported profits of $25-billion, the highest corporate profit ever.
Shell’s CE, Jeroen van der Veer, said the performance ”demonstrates our financial and operational resilience” after a turbulent year. An embarrassing oil reserves scandal claimed the scalps of three senior directors.
But Tony Woodley, general secretary of the T&G trade union in the UK, argued that the level of profits raised questions about pay for Shell workers plus the price of fuel for the motorist as well as industry. ”Such levels of excess are, quite frankly, obscene,” he said. ”With our pensions in crisis, these profits are 9,4-billion extra reasons for a windfall tax. The government should grasp the nettle so everyone can benefit.”
Tony Juniper, executive director at Friends of the Earth, said it was ironic that the Shell figures were being reported just as scientists met in the UK to discuss global warming. ”Huge profits like this are only possible because Shell and other oil companies are able to burden the rest of society with the pollution and climate change that is the inevitable consequence of their business operations,” he said.
But Shell’s executive director, Malcolm Brinded, said: ”There are a quarter of a million jobs in the UK dependent on continued investment in the North Sea. That [investment] can happen but if there is an imposition of a windfall tax, it will, as tax changes have done in the past, knock confidence, knock the investment and in the end damage both business and the interest, in terms of fiscal income, of the UK.” — Â