A tax on excess profits by energy companies could cancel out the planned October energy price increase, new analysis by Tax Justice UK has found.
News that energy prices are likely to rise again in October has added to fears that the cost of living crisis is likely to get worse in the coming months.
However, analysis by Tax Justice UK has found that a 95% tax on the excess profits made by North Sea oil and gas producers could wipe out up to 90% of the predicted increase in energy bills.
Government statistics predict the north sea oil giants could rake in as much as £19.5 billion this year, which is £13.6 billion in excess of what they made over the preceding decade when they averaged £5.9 billion a year.
If set at the right level an excess profits windfall tax on this additional £13.5 billion profit made during a cost of living crisis, could wipe out most of the additional energy price increase predicted to hit people in coming months.
A 95% windfall tax on these profits would generate £12,866m, nearly wiping out the £14,242 million extra cost to all consumers that some have predicted in coming months.
Moves to implement an excess profits tax like this has been supported by other groups including 350.org, Fuel Poverty Action and Church Action for Tax Justice.
Tax Justice UK Head of Advocacy, Tom Peters, said: “UK oil and gas companies are announcing bumper profits, while millions of people make impossible choices about whether to heat their homes or put food on the table.
“Two companies alone have announced profits equivalent to £100,000 a minute so far this year.This isn’t a cost of living crisis, it’s a cost of living scandal.
“The government must act, by introducing a windfall tax on the extra profits that these companies are generating through luck. This would raise funds that could ease the pressure of rising energy bills for millions.”
Estimated total profits from north sea oil and gas producers over 2022 is taken from the OBR’s Economic and Fiscal Outlook, March 2022. This predicts that government revenues arising from a 40% tax rate will be £7,800m (pg.108), suggesting a total projected profit from north sea oil and gas of £19,500m in 2022/23.
‘Excess profits’ have been calculated by averaging profits over ten years using North Sea Transition Authority data. The average annual profits of oil and gas producers in the UK between 2010/11 and 2020/21 was £5,956m. This means an ‘excess profit’ expected this year (£19,500m - £5,956m) = £13,543m
A 95% windfall tax on these excess profits would generate £12,866m, over and above the normal tax applied to ‘normal’ profits.
Ofgem increased the energy price cap by an average of £693 to £1,971 for 18 million customers, and £708 to £2,017 for 4.5 million prepayment customers in April.
Cornwall Insights’ widely publicized analysis predicts that the price cap will be increased to £2,600 in October, which would increase costs by an average of £633 per customer across both tariffs. This would increase the amount paid towards energy costs by 22.5 million consumers by a total of £14,242m. The £12.9bn additional revenue from a 95% windfall excess profits tax would cover 90% of this increase.
If the price cap rises to £2,800, as per the prediction of Ofgem’s Chief Executive, then revenue of £12.9bn from an excess profits tax would cover 70% of the increased amount paid towards energy by customers from October.
New Economics Foundation research showing that 23.5m people will be unable to afford the cost of basic essentials by the end of the year - https://neweconomics.org/2022/03/spring-statement-leaves-48-of-all-children-living-in-families-that-have-to-make-sacrifices-on-essentials-this-spring-like-putting-food-on-the-table-or-replacing-clothes-and-shoes
BP and Shell have announced profits of £4.9bn and £7.3bn respectively in the first quarter of this year, totalling £12.2bn. Dividing this by 90 days, then 24 hours, then 60 minutes = £941,358 per minute.