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Market News UK imposes windfall tax on oil and gas companies, BP says to reconsider investment plans

UK imposes windfall tax on oil and gas companies, BP says to reconsider investment plans

With the UK government announcing that it will impose a windfall profits tax on oil and gas companies, BP said it would reconsider its plans in the UK.

2022-05-27
8332

With the UK government announcing that it will impose a windfall profits tax on oil and gas companies, BP said it would reconsider its plans in the UK.

BP has previously said it plans to invest £18bn in the UK by 2030 and that the plan is not dependent on the government raising taxes.

British Chancellor of the Exchequer Sunak announced in the House of Commons on Thursday that a 25% tax on energy profits would be imposed on oil and gas companies. Soaring oil and gas prices weigh on British households at a time when inflation remains high, and Johnson's government has finally agreed to a tax hike under pressure from multiple parties. However, Sunak also said that the tax increase is only temporary and will be phased out when oil and gas return to more normal levels.

BP said in a statement: "Today's announcement is not a one-time levy, but a multi-year proposal. We now need to study the impact of the new levy and tax relief on our North Sea investment plans."

Christyan Malek, head of global energy at JPMorgan Chase, commented that the main risk facing the British North Sea oil and gas industry is that after the British government announced the levy, international giants such as BP and Shell believe that the UK has become less attractive to them, and the windfall profits tax will give some Projects bring unpredictability, and these projects often take years to develop.

To be clear, most of BP and Shell's profits come from outside the UK. Malek pointed out that the new tax will affect smaller energy companies that are more focused on the UK and have fewer sources of income.

Tax hike due to political pressure

The Johnson government's windfall tax on energy companies is also helpless. Oil and gas prices rose further after the Russian-Ukrainian conflict broke out, and energy companies reaped huge profits. That sparked a backlash at home in the UK, with critics arguing that it was unreasonable for fossil fuel companies to make record profits at a time when many consumers were struggling to cope with soaring energy prices.

Domestic opposition lawmakers and environmentalists have repeatedly called on Prime Minister Boris Johnson to impose a windfall profits tax on oil and gas giants to help struggling British families. Johnson at one point rejected a windfall tax, saying it would depress important investment and keep oil prices high for a long time.

Johnson's Conservative Party has trailed Labour in opinion polls since December, and he himself remains mired in a scandal over allegations of partying illegally during the pandemic. In terms of political necessity, it seems inevitable that Johnson's government will increase taxes on oil and gas companies as calls for a windfall tax have grown in the UK.

Article source: Financial Associated Press
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