BP announces £7bn profit while energy costs rise? It’s time to start taxing shareholder payments Joseph Evans | Whuff News

AAfter BP’s big results were announced today, it’s clear that key questions remain about Rishi Sunak’s tax return. The oil giant registered profits of 8.2bn (£7.1bn) in the last three months, almost three times the profit made in the same period last year. While BP reports that it expects to pay around £700m in windfall tax on its North Sea operations this year, it also plans to spend more than three times that much on a £2.5bn (£2.17bn) buyback programme, returning cash to its shareholders rather than using it for investment. -renewable currency or lower prices.

Sunak introduced the tax when he was chancellor, promising to redistribute the extraordinary profits of oil and gas companies to households and businesses in the form of living expenses. Thanks to very generous loopholes – which provide tax breaks on returns on investments, such as drilling for oil in the North Sea – the energy income tax looks set to miss out on significant revenue. Shell has made more than $30bn (£26bn) in net profit since the start of the year, and has yet to pay a penny in extra tax from the UK.

As prime minister, Sunak also looked at ways to increase tax revenue for the government. Rather than returning to the acute public service cuts, he can turn his focus back to the behavior of the companies he first targeted in May.

Oil and gas producing companies have made watered profits this year while energy averages have doubled since last October, although the government’s price of energy has held costs down. This is not what happened: their windfalls are the result of a sharp increase in the price of energy and represents a direct transfer of money to the pockets of households and businesses.

But instead of sending all their profits to productive investments, energy companies have transferred most of their surplus money directly to shareholders in the form of shares and “buybacks”. Dividends are the primary means of paying shareholders when a company makes a profit, while buybacks reward shareholders by increasing the company’s stock price. Buybacks were illegal in the UK until 1981 because they were seen by many as a way to manipulate the market.

Despite trying to invest billions in the UK’s “energy system” by 2030, Shell and BP. they transferred more than $28.6 billion to shareholders through buybacks this year. BP’s chief executive’s prediction last year that rising oil prices would turn the company into a “money machine” for its investors was vindicated again this morning when it announced the latest round of buybacks. As IPPR and Common Wealth recently revealed, in the first half of this year BP spent 10 times as much money on handing out cash to shareholders through buybacks as it invested in renewable energy. Shell spent seven times as much on share buybacks as it invested in renewables over the same period.

Oil and gas giants are among the most extreme examples of this practice, but they are not uncommon. Cash transfers to shareholders have increased across the UK economy since the pandemic ended. Shareholder payouts, which fell during the Covid period, are now 30% higher than during the pandemic. Buybacks have rebounded 20-fold from their lows during the pandemic and are now twice as high as their previous peak in 2018.

Surprisingly, shareholders pay less tax on the wealth they receive from stock acquisitions than working people pay on their wages and salaries. Dividends and buybacks are often taxed at lower rates than income tax, allowing asset owners to accumulate wealth while paying less tax than workers.

This payment benefits the wealthiest members of society. Recent analysis by Common Wealth shows that the top 1% of households dominate the direct ownership of UK shares. This means that while households struggle with the cost of living crisis, profits are transferred into the hands of wealthy property owners. This situation cannot be justified. Taxes on shareholder payments should be increased to ensure that companies do not send profits to their investors during times of national economic crisis.

The Biden administration recently introduced a small tax on stocks to support renewable energy projects and reduce the US government deficit. An analysis by IPPR and Common Wealth shows that if the UK government followed suit, it could raise £225m a year. Otherwise, tax “windfall” on share buybacks could raise up to £11bn a year, more than half from the Shell and BP buyouts alone. Higher taxes would encourage companies to reinvest their profits into the economy and in the process increase growth, innovation and job creation.

At the same time, the government can close a loophole that allows shareholders to pay less tax than workers. Bringing taxes on dividends in line with income tax levels would raise £6bn a year.

Targeting the imbalance between growing shareholder payments and falling household incomes will allow the government to continue to support households and businesses without falling back on austerity. It is important that we prioritize these progressive revenue increases over the unsuccessful spending cuts of the past.

This article was corrected on 1 November 2022, as it was attributed to George Dibb, not Joseph Evans.

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