Awindfall tax on the bumper profits of oil and gas giants could raise an additional £4bn in revenues that could be used to help six million cash-strapped households as well as insulating homes to lower future energy bills, Greenpeace UK has estimated.
The figure is being released as Shell is expected to announce tomorrow a multi-billion-pound profit bonanza for last year driven largely by record-high gas prices.
The UK government has come under intense pressure to provide support for families struggling with the cost of living crisis, but no concrete plans have been put forward yet. Energy bills in the UK are expected to soar by about 50% when a price cap is lifted in April, driving up the number of households living in fuel poverty to six million, according to one estimate.
Charities, opposition parties and some Conservative backbenchers have been urging the Chancellor Rishi Sunak to bring in a windfall tax on the profits of oil companies to fund support for struggling households.
Under the current tax regime, oil and gas companies pay around 40% total tax on the profits arising from their extraction of fossil fuels from the North Sea.  This is the lowest government tax take in the world for an offshore oil and gas regime. As leading experts Rystad Energy have said, “the UK offers operators best profit conditions to develop big offshore fields” with the lowest tax take of any of the countries (over 30) that they looked at.
Greenpeace UK calculated how much revenue the government could raise by simply applying an average level of tax of 70%, the same as Angola and Trinidad, although still less than Norway, Mexico or India. All things being equal, this would provide an additional £3.9bn to the UK Exchequer.  This is on top of about £5.25bn already expected to come from North Sea revenues for 2022 according to analysis by Wood Mackenzie.
The revenue from the windfall tax would be enough to cover the £500 one-off payment to households struggling with bills being considered by the government. It would also leave a further £1bn which could support low-income households to insulate their homes and cut future bills, thus fulfilling an outstanding pledge from the 2019 Conservative manifesto.
Three-quarters of Conservative voters support a new windfall tax on oil and gas companies, according to a recent poll.
Commenting on the figures, Greenpeace UK’s policy director Dr Doug Parr said:
“It’s a tale of two cities. The gas price crunch is pumping billions into the coffers of fossil fuel giants while raiding the purses of every household, leaving millions to choose between heating and eating. For a government so keen on levelling up, this is surely an opportunity not to be missed.
“Our estimates show that by doing nothing more than taxing fossil fuel profits in line with the global average, Rishi Sunak would be able to raise billions to help financially vulnerable households. A windfall tax is fair, proportionate and popular, and the Chancellor should get on with it.”
Industry groups have argued that a windfall tax could limit the amount of money oil companies will be able to invest in renewable energy. But many North Sea operators have been taken over by private equity funds that have no interest in renewables, while Shell plans to spend four times as much on oil and gas development as on renewables this year.