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BP Profits Spark Debate Over Tougher Windfall Tax

BP

BP has exceeded City forecasts with biggest profits in the first quarter of 2023, even as energy prices eased. This has sparked a discussion about whether oil and gas companies should be entitled to windfall profits.

The energy giant announced that its underlying profits for the initial three months of the year stood at $5 billion (£4 billion), surpassing the predicted $4.3 billion by analysts. This is the second-highest result for the first quarter, after last year’s $6.2 billion, and the best since 2012 when it recorded $4.7 billion.

BP among the top fallers on the FTSE 100 index

According to BP, the decrease in refining expenses, an “exceptional” performance in its gas trading department, and a “very strong oil trading result”, were the driving factors behind its positive results. The heightened volatility in current energy markets has led to an increase in revenues in the trading divisions of oil businesses.

BP raised its dividend and announced it would reward investors, with plans to buy back $1.75 billion of its shares, which is lower than the previous quarter’s $2.75 billion buyback. However, the company’s shares plummeted by almost 4% on Tuesday morning, making it among the top fallers on the FTSE 100 index. These results have rekindled the debate over whether oil and gas corporations should incur a larger windfall tax on their profits.

Despite a recent decrease in gas prices, they are still considerably higher than pre-energy crisis levels in 2021. It is anticipated that consumer gas and electricity bills will continue to surpass historic averages for the rest of the year.

Criticism

On Monday evening, the Labour party called for the energy profits levy, which was implemented last year, to be strengthened to fund a freeze on council tax for households facing financial difficulties.

Furthermore, as previously declared, the Labour Party supports broadening the UK’s windfall tax to include earnings from refining oil and selling fuel, while eliminating a tax break on fossil fuel extraction. Shadow Energy Secretary, Ed Miliband, said: “The Tory windfall tax is still full of get-out clauses with billions being bunged at oil and gas companies in special subsidies not available in any other part of the energy sector.”

Moreover, according to Paul Nowak, who serves as the general secretary of the TUC, oil and gas companies are exploiting the British public “like cash machines”. He said: “These eye-watering profits are an insult to working families as millions struggle with sky-high bills. The government has left billions on the table by refusing to impose a proper windfall tax on the likes of BP. And even now ministers are refusing to take action to fix our broken energy market and stop this obscene price gouging”.

BP has also come under fire recently from green activists, who have criticised the company for reducing its climate objectives earlier this year. During BP’s annual general meeting last week, climate demonstrators caused disruptions in proceedings, whilst some shareholders expressed their disappointment with the weaker climate targets. This resulted in some protesters being forcibly removed.

Jonathan Noronha-Gant, a senior campaigner at Global Witness, said: “As the cost of living crisis continues to bite, BP is still raking in immense profits. The energy crisis has shone a spotlight on the huge gulf between the winners and losers of our fossil fuel-based economy, with oil giants like BP laughing all the way to the bank, while elderly people are freezing to death in their homes, and our kids are going to school hungry.”

Final thought

While the surge in profits has helped businesses recover from the impact of the COVID-19 lockdown, giants like BP are profiting from struggling households and detrimental fossil fuels. Last year, the oil and gas giant said it spent billions more on fossil fuels than low carbon energy.

“Where you spend your money says a lot about your priorities,” said Mike Childs, the head of policy at Friends of the Earth. “It’s astounding that in the middle of a climate emergency BP is planning to invest billions more dollars on planet-warming fossil fuels than on clean, green renewables.”

When will the government tax excessive profits to help hard-hit communities and prioritise the planet?

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