SOME of the world’s biggest oil and gas companies have been making record amounts of money, with their success leading to calls for higher taxes on their profits.
Exxon Mobil, based in the US, announced that it made $56 billion (£46bn) in profits in 2022, a record for any oil company in the Western world. UK-based Shell also said it hit record profits of $39.9bn (£32.2bn), more than double what it earned in 2021.
With a company like Exxon taking in about $6.3m (£5m) every hour last year, some people think oil companies need to pay more tax. It’s become a big issue, especially because lots of people are struggling with the cost of living. Last October, US President Joe Biden accused oil companies of profiting from war, because they are only making so much money because the war in Ukraine has increased the demand for oil and gas.
While the companies are making more money, energy bills have gone up for most people, and many are struggling to afford to pay.
What is a windfall tax?
A windfall tax is an extra tax put on a company that is seen to be making a huge amount of money, especially if it’s seen as far too much. Last year, Prime Minister Rishi Sunak put a 25% windfall tax on oil and gas companies when he was chancellor. It has been increased to 35% by the current chancellor, Jeremy Hunt. But this extra tax only affects the money companies make by digging up oil and gas from UK areas.
With other parts of their business, such as selling petrol at petrol stations, they don’t have to pay the Government extra tax on the money they make from that. Last week, Shell said it would be paying the UK £108m for the money it made in 2022 and expected to pay more than £400m for 2023. BP, another UK gas company, said it would be paying £678m in 2022. It might sound like these companies are paying loads of tax, but the Government has given them ways to pay less.
Companies that drill for oil and gas in the UK parts of the North Sea, like Shell, Exxon and BP, can cut the tax they pay by investing in North Sea oil production. That might mean they pay to build oil rigs, remove existing rigs or hire ships to move the oil. The idea is to encourage companies to invest in the UK to make sure there’s a steady supply of oil and gas.
There are also worries that, if the UK is too strict on the companies, they will just work in other countries that give them a better deal. It’s a delicate balance but, at the moment, it means the companies can pay a lot less tax to the UK, or even none at all.
In the case of Shell, the company says it paid $13bn of tax around the world in 2022, and only a small amount of that goes to the UK because the UK counts for “less than 5%” of the money Shell makes. But, as Shell is based in the UK, some people think it should pay a lot more.
Oil companies and the climate
After Shell announced its record profits, its headquarters were targeted by Greenpeace. Its climate activists set up a tall board like the ones that show the cost of fuel at petrol stations. The sign highlights Shell’s £32.2bn 2022 profits with a question mark over the amount it’s paid for climate damage.
Greenpeace wants Shell and other oil companies to take responsibility for their role in the climate crisis and pay for its effects. Meanwhile, an example of the effects of the oil industry has been highlighted by Amnesty International, which is raising awareness about two communities in Nigeria who are suing Shell. They say that the company’s oil spills have poisoned their land and drinking water and made them unable to make a living from fishing and farming.
People living there have been trying to get Shell to clean up the mess for seven years now. Osai Ojigho, Director of Amnesty International Nigeria, said: “Had this level of contamination and pollution occurred in Europe or North America [instead of Africa], it is hard to imagine that there would not have been swift and severe consequences.”