10 Friday May 27 2022 | the times
News
The interview in The Times on May 4
in which Bernard Looney, the chief
executive of BP, said he would invest
in Britain despite any windfall taxNews Politics
The chancellor is preparing to impose a
windfall tax on electricity firms within
weeks despite provoking a furious
backlash from business yesterday by
launching a £5 billion raid on North Sea
oil and gas producers.
Rishi Sunak yesterday abandoned
months of opposition to a windfall tax
by announcing a new 25 per cent levy
on the “extraordinary profits” that oil
and gas companies are making after
prices surged, partly driven by Russia’s
invasion of Ukraine.
Defending the U-turn to fund relief
for consumers facing record energy
bills, Sunak declared: “We all make mis-
takes and being able to change course is
not a weakness, it is a strength.”
The chancellor threatened to extend
the levy to power-plant owners, saying
that “certain parts of the electricity-
generation sector are also making
extraordinary profits” and that he was
“urgently evaluating” the scale of these
profits, and the steps to take, following
retary, and Sajid Javid, the health secre-
tary, went public with their opposition
to a windfall tax. They reflected the
concerns that No 10 was expressing in
private — that the move would ulti-
mately deter investment.
When the U-turn finally came, it was
swift and unapologetic. By the weekend
the broad approach was settled — a
25 per cent windfall tax on oil and gas
profits with discounts for companies
that were prepared to invest more.
The package was finally signed off in
a meeting between Sunak and JohnsonPressure to adopt
‘Looney levy’ too
strong to resist
Steven Swinford Political Editor
Oliver Wright Policy Editor
late on Tuesday — to be ready to
announce yesterday in the aftermath of
the Sue Gray report. In the Commons
Sunak said that the ability to change
course was a sign of strength. Despite
the heckles from Labour benches, the
political calculation by the Conserva-
tives is that the public will remember
the policy itself, rather than the U-turn.
During a cabinet conference call
yesterday, opposition to the plans was
muted. Jacob Rees-Mogg, the Brexit
opportunities minister, was the only
cabinet minister to speak out against it.
He suggested that Sunak’s cost-of-living
package would be better funded by
reducing public spending elsewhere.
Kwasi Kwarteng, the business
secretary, is understood to remain
opposed to the windfall tax in principle.
A government source said: “It has
been terrible colleague-handling yet
again. They allow ministers to go out
there defending a really difficult corner
and then just do a monumental U-turn
without any consultation.
“As ever the first anyone hears about
it is when they read it in the papers.
There is a lot of unhappiness. It happens
time and time again. There is simply no
effort to get people on side or allow them
to walk back from their positions with
dignity.”
A senior Tory MP said: “For a lot of
voters in my constituency this will
make a big difference. I couldn’t ask
for more. But it’s just a shame about
how they did it. They marched us all
up the hill to vote against the wind-
fall tax in the Queen’s speech and
now they have marched us all back
down again having got all the flak
in our constituencies. Politically
they’ve got to the right place — I just
don’t understand how we needed to
have all the pain getting there.”
Sunak’s splurge will buy him only
six months, James Forsyth, page 25
Mini-budget shows political weakness,
leading article, page 29Pumping oil
Estimated windfall tax take per firmSource: Jefferies2022 2023Estimates for Shell are negligible because
their investments offset the taxTotalBPENIHarbour EnergySerica EnergyEnQuest$500m$100m$100m$107m$64m$14m$900m$800m$200m$268m$99m$73mIn the end Rishi Sunak and Boris
Johnson felt they had no choice but to
bow to pressure and impose a windfall
tax. For months the government had
resisted calls from Labour and a growing
number of Tory MPs to introduce the
measure amid mounting public
concern about the “obscene” profits
that energy companies were making.
On May 4 that finally changed. Ber-
nard Looney, the chief executive of BP,
said in an interview with The Times that
he would continue with plans to invest
£18 billion in Britain this decade even if
the government bowed to calls for a tax.
His comments had such a profound
impact on the debate that in the energy
industry the windfall tax is being
described as the “Looney levy”.
“Politically we were left with no
choice,” a senior government source
said. “We found ourselves the only
people that were left defending it. Then
Tesco, John Lewis and everyone else
piled in. They were basically goading us
into it.” Another member of the govern-
ment said that Looney’s intervention
was “the most expensive interview in
history”, describing it as “extraordinary”.
It was enough to shift the dial on a
debate in government that had
been raging for months.
BP said yesterday, however,
that it would be reviewing its
investment plans in the North Sea.
One government source said
Sunak had become convinced of
the need for a windfall tax about
two months ago but faced strong
opposition from Steve Barclay,
Boris Johnson’s chief of staff, and
other senior Downing Street
figures such as David Canzini. They
argued that the approach was
fundamentally “unconservative”.
No fewer than seven cabinet minis-
ters including Liz Truss, the foreign sec-
Sunak plans raid on electricity profits within a month
moves by other European countries to
tax power companies.
The Times understands that Sunak
intends to announce plans to tax elec-
tricity generators within the next
month. “It’s called the energy profits
levy for a reason,” a government source
said. “It’s a broad tax, we want to move
sooner rather than later.” The tax on
electricity generators would raise in the
region of “the low digit billions”.
The new energy profits levy will im-
mediately increase the total tax rate
that oil and gas companies pay to 65 per
cent, from 40 per cent at present —
going even further than Labour’s pro-
posal of a 10 percentage point increase.
The Treasury said it was expected to
raise £5 billion in the first 12 months and
that rather than a one-off levy, the
measure will remain until “oil and gas
prices return to historically more
normal levels”, or by the end of 2025.
The government had rejected
Labour’s plan on the basis that it would
deter investment but Sunak insisted
that the new levy would “encourageinvestment, not deter it” because of a
system of tax relief that meant that “the
more a company invests, the less tax
they will pay”.
However, Deirdre Michie, chief ex-
ecutive of Offshore Energies, the North
Sea lobby group, claimed that the new
tax would “drive away investors and so
reduce UK energy production”.
“In just a few years, the UK will be
even more reliant on other countries
for its energy, and consumers will still
face rising bills,” she claimed, warning
that “a flood of investment formerly
earmarked for UK energy projects”
could now be diverted overseas, mak-
ing it harder for Britain to hit its net zero
goals. About 200,000 people working
in the oil and gas industry were now
“facing a less secure future”, she said.
Chris Sanger, head of tax policy at
EY, said companies might accelerate
planned investment in the near term to
take advantage of the tax relief, but that
“longer-term investment may be de-
terred due to increased uncertainty as
to the reliability of the UK tax regime”.Critics pointed out that the tax relief
was available only for companies in-
vesting in North Sea oil and gas, not
green energy. This is despite the fact
that companies such as BP and Shell
have said they intend to plough most of
their UK profits into low-carbon pro-
jects such as offshore wind farms and
electric vehicle charging.
Derek Leith, the global oil and gas
tax leader at EY, said: “I’m gravely
concerned that it will reduce the ability
of these companies to invest in the
energy transition. It seems to me coun-
terproductive.”
Government sources said the U-turn
was influenced by the admission
this month by Bernard Looney, the
chief executive of BP, in an interview
with The Times, that a windfall tax
would not lead the company to rethink
its £18 billion UK investment plans.
However, BP yesterday suggested
that its plans may yet be affected, as the
new taxes were not what it regarded as
a windfall tax. “Today’s announcement
is not for a one-off tax — it is a multi-year proposal. Naturally, we will now
need to look at the impact of both the
new levy and the tax relief on our North
Sea investment plans,” a spokesman
said.
Shares in several North Sea produc-
ers tumbled, with Serica Energy down
14 per cent and EnQuest falling 7 per
cent. Centrica, the British Gas owner,
which has North Sea production and
could also be affected by a levy on
power producers, fell 7 per cent, while
power companies Drax and SSE both
fell almost 5 per cent.
Chris O’Shea, the chief executive of
Centrica, said: “It is important that
unplanned tax changes do not damage
investor confidence in the UK’s energy
sector.”
Shares in BP and Shell both rose yes-
terday, however, as did oil prices. Ana-
lysts at RBC Capital Markets said that
any additional tax for these global oil
giants would be “manageable within
the context of the wider group, and
more than offset by a small change in
commodity prices overall”.Emily Gosden, Steven Swinford
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