When Shell announced the biggest profits in its history – £32.2 billion pounds for 2022 on Thursday – the BBC morning news flagship, the ‘Today’ programme gave listeners misleading information about how much tax it is paying in the UK compared to other countries.
The show’s journalists gave the erroneous impression that the UK is getting a similar amount of tax from Shell as elsewhere – but in fact, because of the UK’s tax regime, Shell made no ‘taxable profit’ in the UK in the first three quarters of the year 2022 and paid no windfall tax at all. It may pay a small amount of windfall tax to the UK for the last quarter but the figure is so far unclear.
Shell produces about 120,000 barrels of oil a day equivalent from the UK continental shelf, 90% of which is in Scottish waters – but it makes no taxable profit on that.
FT energy correspondent David Sheppard wrote: “A windfall tax that raises a big fat doughnut from one of the UK’s largest oil and gas producers at a time of record prices is, by its very definition, imperfect, even if Shell has indicated it expects to start paying tax in the UK… A system that taxed oil and gas production first rather than zeroing in on profits would ensure the government’s take from the exploitation of an irreplaceable natural resource was never zero.”
Robinson: “It’s a little bit higher in other countries” – hmm, no – it is SO much higher in other countries!
Presenter Nick Robinson said: “There is a lot of tax being paid by these companies already. Shell is paying 75% of its UK-based profits in tax – it is a little bit higher in other countries but not much. We are talking of companies that are paying a lot more in corporate taxes than most.”
Robinson did not mention that Shell, which moved its HQ from the Netherlands to London a year ago, has made no taxable profit in the UK since 2017. In contrast, Shell paid £3.7 billion to the Norwegian state in 2021 for example, far more than it paid in the UK. where since 2016, its subsidies have outweighed the tax it has paid.
Shell also distributed $26bn to shareholders in 2022 including $18bn in share buybacks. Tax expert Dan Neidle argues that it would be appropriate for the UK to levy a one-off tax on Shell’s UK-based global HQ. “Shell is crying out to be taxed more,” he told the Financial Times.
“It’s not easy to design a windfall tax”, Today’s business apologist – sorry, business editor – explained
Business editor Simon Jack implied that Shell should be allowed to keep its massive profits – the highest a UK headquartered company has ever made – because it “got no subsidy” when oil prices fell.
Simon Jack told listeners: “It’s not easy to design a windfall tax. Its not the highest in the world – its higher in Nigeria and Norway but it’s one of the highest in the world, and just a reminder that Shell makes 95% of its money and that is taxed elsewhere in the world not here in the UK”
Robinson asked Jack: “How do governments deal with these record energy profits which may be just short term?”
Jack said: “It’s very volatile prices. For example, when the price of oil collapsed, Shell will say ‘No-one offered to subsidise our losses when we lost billions in those years so this is the flipside of that’. There is obvious outrage at these numbers, but, like I say, designing a windfall tax is not straightforward for a UK-domiciled company which makes 95% of its money elsewhere in the world and is taxed elsewhere in the world.”
Not true – since the oil tax regime changed, Shell has benefited from taxpayer support!
If you look at GERS, the account of Scotland’s finances, you can see a change coming through after 2015/16, when the UK government started to tax the sector differently. The effect of the UK’s tax changes were that many private companies and their shareholders became net recipients of taxpayers’ money.
This was ostensibly done to increase investment and to protect jobs as the oil price fell – but Aberdeen was hit harder than Norway, which continued to tax energy firms at its usual high rate. Rebates were not specifically linked to any commitment to save jobs. In 2016 Shell, having benefitted from tax rebates from the UK Government and having made many thousands of workers redundant, went on to declare the world’s largest shareholder profit dividend that year.
Could there be a political reason for under-taxing oil production from Scotland?
The UK Government now takes much more tax on oil and gas at the pump or when heating oil is purchased. In 2022-23, fuel duties are expected to raise £25 billion. Very little of that is credited to Scotland’s accounts.
Some suspect that one reason for changing the North Sea tax regime is to lend weight to the Unionist argument that Scotland is too poor to become independent.
Energy taxation is reserved to Westminster
Shell is not doing anything illegal – it is the UK government’s political and ideological choice to give Shell tax rebates and subsidies. This is reserved to the UK government – the Scottish Parliament has no say on it.
Westminster gives tax rebates to large oil companies to cover the cost of decommissioning rigs and fields and to explore for new oil fields. These tax deductions include an effective subsidy for any fossil fuel production – but not for green investment. Writing in the Financial Times, Professor Michael Devereux at the Oxford University Centre for Business Taxation argues this has, in effect, created a subsidy for fossil fuel projects that otherwise would not go ahead.
Conclusion – BBC flagship news show sounds like propaganda
The BBC has come in for criticism recently for being too close to the Conservative Party, and to the world of big business. It has lost the trust of many in Scotland, where 1 in 7 people no longer pay the licence fee. Today’s misleading reporting of Shell’s historic profits, which in the UK came from exploiting Scotland’s energy resources, will do little to rebuild trust.