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HIGHLIGHTS
- Chancellor Rishi Sunak has hinted that he may consider imposing a windfall tax on oil and gas firms.
- A windfall tax is a special, one-time levy that a government imposes on a company or a group of companies on reaping huge profits because of some economic activity.
In the last few months, calls from UK lawmakers regarding the imposition of a windfall tax on energy firms have intensified as their profits have surged due to high oil and gas prices. The government, which rejected the idea earlier, now seems to be open to it, with Chancellor Rishi Sunak hinting at a possible U-turn on the levy, saying that 'nothing is ever off the table' in such matters.
The government had earlier dismissed the proposal, fearing that it may stop the companies from investing. However, Sunak has now said that businesses must do more to protect energy security, and if there isn't enough investment by them in the country, then windfall tax is something that may be looked at. His remarks came just hours after Deputy Prime Minister Dominic Raab termed the idea of windfall tax as 'disastrous' and 'damaging'. It was also rejected by Prime Minister Boris Johnson earlier on Wednesday.
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What exactly is a windfall tax?
In the simplest terms, a windfall tax is a special, one-time levy that a government imposes on a company or a group of companies that generated unexpectedly huge profits as a result of some economic activity. In the current situation, oil and gas companies have profited from the high demand, which has inflated the energy prices. Major oil companies in the UK, like BP and Shell, made huge profits last year. BP earned £10 billion in profits, while Shell did even better with a profit of £15 billion.
The opposition Labour Party has suggested a 10% levy on the corporation tax paid by the companies working in the North Sea and use it to help households that are struggling with high energy costs.
Let us take a look at how FTSE-listed oil and gas companies reacted to the development.
Shell Plc (LON: SHEL)
The UK-based oil and gas giant has operations in over 70 nations. Recently, its CEO announced that the company aims to achieve its net-zero target by 2050, and it will no longer depend on the progress of its customers or the broader society. Earlier, Shell had said that the suspension of its operations in Russia might lead to losses of about US$4-5 billion in the first quarter.
The company has a market cap of £164,212.82 million, and its share price has surged by 56.85% in the last one year as of 29 April 2022. The shares of the FTSE 100-listed company were trading at GBX 2,172.50, down 0.57% at 11:10 am GMT+1 on Friday.
BP Plc (LON: BP.)
BP is a multinational oil and gas firm headquartered in London. The company recently entered a deal with German automaker Volkswagen to jointly deploy 8,000 charging spots for electric vehicles across the UK and Europe.
The FTSE 100 constituent has a current market cap of £75,816.89 million, and its stock price has gone up by 27.82% over the last one year. BP's shares were trading at GBX 388.98, up by 0.24% at 11:22 am GMT+1 as of 29 April 2022.
Harbour Energy Plc (LON: HBR)
Harbour Energy is the British North Sea's largest oil and gas producer and a constituent of the FTSE 250 index. Shares of the company have given a return of 28.58% to its investors in the last one year. Its market cap stands at £4,623.96 million as of 29 April 2022.
Shares of the company were trading at GBX 506.98, up 1.48% at 11:30 am GMT+1 on Friday.
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