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Energy prices: What is a windfall tax and how would it work? Energy prices: What is a windfall tax and how would it work?
(about 2 hours later)
Labour is calling for a windfall tax on oil and gas companies in the North Sea to help households and energy-intensive industries to cope with higher fuel bills.Labour is calling for a windfall tax on oil and gas companies in the North Sea to help households and energy-intensive industries to cope with higher fuel bills.
It comes as companies such as BP and Shell announce big increases in profits.It comes as companies such as BP and Shell announce big increases in profits.
Calls for windfall tax grow as BP's profits surgeCalls for windfall tax grow as BP's profits surge
What is a windfall tax?What is a windfall tax?
A windfall tax is a one-off tax imposed by a government on a company or group of companies.A windfall tax is a one-off tax imposed by a government on a company or group of companies.
The idea is to target firms that were lucky enough to benefit from something they were not responsible for - in other words, a windfall.The idea is to target firms that were lucky enough to benefit from something they were not responsible for - in other words, a windfall.
An example of such a windfall would be high energy prices. Companies that get oil and gas out of the ground are getting much more money for it than they were last year, largely because there has been so much more demand as the world emerges from the pandemic.An example of such a windfall would be high energy prices. Companies that get oil and gas out of the ground are getting much more money for it than they were last year, largely because there has been so much more demand as the world emerges from the pandemic.
Spain has already announced a windfall tax on energy companies.Spain has already announced a windfall tax on energy companies.
How countries are dealing with rising pricesHow countries are dealing with rising prices
What are Labour suggesting?What are Labour suggesting?
Labour has proposed an increase of 10 percentage points on corporation tax (tax paid on profits) for North Sea oil and gas producers, in the year beginning in April.Labour has proposed an increase of 10 percentage points on corporation tax (tax paid on profits) for North Sea oil and gas producers, in the year beginning in April.
It says this would raise £1.2bn which could be used to help households struggling to cope with a 54% rise in energy bills from April.It says this would raise £1.2bn which could be used to help households struggling to cope with a 54% rise in energy bills from April.
Labour would do this by:Labour would do this by:
getting rid of VAT on domestic fuel bills (currently 5%)getting rid of VAT on domestic fuel bills (currently 5%)
increasing the warm homes discount from £150 to £400 increasing the warm homes discount from £140 to £400
extend this discount to nine million families, up from the 2.2 million that currently receive itextend this discount to nine million families, up from the 2.2 million that currently receive it
However, the government argues that a windfall tax would stop companies investing.However, the government argues that a windfall tax would stop companies investing.
Critics of the policy also point out that many pension funds benefit from the profits of big oil companies. Some private pension funds own shares in them, which means they get some of the profits through dividends.Critics of the policy also point out that many pension funds benefit from the profits of big oil companies. Some private pension funds own shares in them, which means they get some of the profits through dividends.
The companies also employ thousands of people and support thousands of other jobs in the UK.The companies also employ thousands of people and support thousands of other jobs in the UK.
Have we had windfall taxes in the UK before?Have we had windfall taxes in the UK before?
The best-known windfall tax in the UK was announced by Chancellor Gordon Brown in his first Budget in 1997.The best-known windfall tax in the UK was announced by Chancellor Gordon Brown in his first Budget in 1997.
The companies paying the tax were those that had been privatised since 1979 by previous Conservative governments, including:The companies paying the tax were those that had been privatised since 1979 by previous Conservative governments, including:
power utilities such as Scottish Powerpower utilities such as Scottish Power
water and sewerage companies such as United Utilitieswater and sewerage companies such as United Utilities
the telephone company BTthe telephone company BT
the airports operator BAAthe airports operator BAA
1997: Gordon Brown announced a windfall tax in his first budget1997: Gordon Brown announced a windfall tax in his first budget
Labour argued that all these companies had been undervalued at privatisation. Their windfall tax was calculated as the difference between the price at which the government sold them, and a market valuation based on their profits in the four years after their sale.Labour argued that all these companies had been undervalued at privatisation. Their windfall tax was calculated as the difference between the price at which the government sold them, and a market valuation based on their profits in the four years after their sale.
Windfall taxes haven't only been a Labour policy. In 1981, Conservative Chancellor Geoffrey Howe imposed a similar levy on the banks.Windfall taxes haven't only been a Labour policy. In 1981, Conservative Chancellor Geoffrey Howe imposed a similar levy on the banks.
He argued that they had benefited from high interest rates, which had been raised to 17% in November 1979, although they were cut to 12% the day after the 1981 Budget.He argued that they had benefited from high interest rates, which had been raised to 17% in November 1979, although they were cut to 12% the day after the 1981 Budget.
Mr Howe later imposed a special tax on North Sea oil and gas companies.Mr Howe later imposed a special tax on North Sea oil and gas companies.
How much tax do oil companies pay?How much tax do oil companies pay?
Oil and gas companies operating in the North Sea are already taxed differently to other companies.Oil and gas companies operating in the North Sea are already taxed differently to other companies.
The taxes on their profits are higher, but they also have bigger capital allowances, which means they can pay less tax if they are investing money.The taxes on their profits are higher, but they also have bigger capital allowances, which means they can pay less tax if they are investing money.
They pay 30% corporation tax on their profits and a supplementary 10% rate on top of that. Other companies pay corporation tax at 19%.They pay 30% corporation tax on their profits and a supplementary 10% rate on top of that. Other companies pay corporation tax at 19%.
But the amount of UK tax paid by oil and gas companies has been relatively low in recent years.But the amount of UK tax paid by oil and gas companies has been relatively low in recent years.
The National Audit Office points out that in some years the government paid more to oil and gas companies in tax relief than it received from them in taxes.The National Audit Office points out that in some years the government paid more to oil and gas companies in tax relief than it received from them in taxes.
This is because they spent enough on things like decommissioning North Sea oil platforms to cancel out any profits they were making in the UK.This is because they spent enough on things like decommissioning North Sea oil platforms to cancel out any profits they were making in the UK.
BP's reports for 2015 to 2020 all show overall refunds, which means it received more money back from the UK government than it paid.BP's reports for 2015 to 2020 all show overall refunds, which means it received more money back from the UK government than it paid.
Shell has similar reports. It made overall payments to the UK government in 2017 but was negative for the rest of the period.Shell has similar reports. It made overall payments to the UK government in 2017 but was negative for the rest of the period.