Energy companies are making £60m in profits a day from operations in the North Sea and should be paying more in tax to fund a freeze on council tax for cash-strapped households, according to Labour.
Labour’s call comes before the latest financial updates from Shell and BP this week. The energy companies are expected to report more bumper profits to the London market due to the spike in prices caused by Russia’s invasion of Ukraine.
UK-headquartered Shell made $40bn (£32bn) in profits last year, one of the largest in British corporate history and the best performance in its 115-year history, while BP more than doubled annual profits to $28bn.
Other energy companies including Centrica, the owner of British Gas, also posted record profits last year.
Labour estimates that the largest energy companies have already booked £7bn in profits so far this year – the equivalent of about £60m a day – from North Sea operations.
Ed Miliband, the shadow climate change and net zero secretary, said: “While families face the crunch from soaring bills, these new figures confirm yet again that the Conservatives are refusing to do the fair and right thing and bring in a proper windfall tax on oil and gas giants to help freeze council tax this year.
“That’s the choice Labour would make ahead of these local elections, because we are on the side of working people.”
Prime minister Rishi Sunak originally introduced a 25% energy profits levy, more commonly known as a “windfall tax”, which was meant to run until the end of 2025 when he was chancellor. In January, the windfall tax was increased to 35% and will run until March 2028.
Harbour Energy, the North Sea’s biggest producer, has claimed that the tax “all but wiped out” its profits last year. Oil and gas firms operating in the North Sea also pay 30% corporation tax on their profits and a supplementary 10% rate on top of that. Other firms currently pay corporation tax at 25%.
Labour has criticised the windfall tax scheme because it applies to profits made from extracting UK oil and gas but not from other activities, such as refining oil and selling petrol and diesel on forecourts. It also lets firms claim tax savings worth 91p of every £1 invested in fossil fuel extraction in the UK.
Labour said the tax relief should be scrapped to implement a “proper” windfall tax.
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Shell initially said it did not expect to pay any windfall tax for 2022 as its North Sea investments meant it was not considered to have made any UK profits.
However, the company subsequently announced that it would pay $134m (£108m) for 2022, and expected to pay more than $500m (£400m) for 2023. BP said it would pay $700m (£583m) in windfall tax for 2022.
Europe, which uses a different method to tax windfalls under its “solidarity contribution” scheme, raised the larger sum of $520m in EU payments last year.
The government says that tax receipts from companies operating in the North Sea will be £11bn in 2022-2023. Jeremy Hunt, the chancellor, has said that the windfall tax will raise £40bn over six years.