Tesco’s boss says oil companies are untroubled by a one-off levy to help households pay energy bills
- Windfall tax could raise £2bn, says Labor
Tesco chairman John Allan, not only called for a windfall tax on North Sea oil and producers but also said this on May 10:
“I think they [the companies’ boards] are expecting it and I doubt they would actually be much fazed by it.”
Since Allan is an influential FTSE 100 boardroom heavyweight, it is safe to conclude he is right about the first point. And one strongly presumes he’s correct on the second, too: many versions of a windfall tax do not involve sums that should intimidate shareholders or directors.
The Labor party’s formula expects a temporary rise in the rate of tax on the North Sea profits from forty percent to fifty percent to seize the “windfall” element generated by the surge in wholesale gas and oil prices.
As noted here in the past week, BP says it already foresees paying up to £1bn in tax on its North Sea profits this year, so a windfall tax on top would only increase an extra £250m in its case.
Such a sizeable sum – levied as a genuine one-off – would not lead to a downturn at a company with a stock market value of £79bn that expects to issue £8bn to shareholders this year via share buy-backs and dividends.
Bernard Looney, the BP chief executive, has already agreed that £18bn-worth of planned investment in the UK over the next decade would not be put at risk. Allan’s “not much fazed” conclusion sounds honest.
The opposite side of a modest revenue-raising proposal is, of course, the insignificance of its impact in reducing the cost of energy for consumers, even if directed entirely at low-income households. Labor mentioned as small as £1.2bn overall when proposing its windfall idea in January.
This additional rise in wholesale prices might inflate the figure to £3bn-ish under the same formula. But, that has to be sighted in the context of further energy costs for UK consumers in 2022, which will be north of £20bn in total on plausible estimates.
Allan’s intervention, on a day British Gas-owner Centrica disclosed a profits increase caused by healthy returns from its North Sea gas fields and nuclear assets, may aid in introducing a note of realism into this debate. Boards are rational: if windfall taxes are seen to be applicable only in uncommon circumstances, they are going to destroy long-term investment plans.
Similarly, a windfall tax does not offer a means of escape. From the Treasury’s and consumer’s point of view, it is a case of every little helps, as a chairman of Tesco could have phrased it. But, yes, as Allan did state, the reasoning in favor is beginning to seem “overwhelming”.
The Arga saga still smolders
According to Sir John Kingman’s review of the Financial Reporting Council, the audit watchdog, published in December 2018, the first recommendation stated:
“The FRC should be replaced as soon as possible with a new independent regulator with clear statutory powers and objectives.”
Pay attention to the “as soon as possible” imperative. The report by Kingman was spurred by the chaotic collapse of construction giant Carillion that year, an appalling example of a large and important company collapsing like a house of cards despite securing a clean bill of financial health.
A shake-up was believed to be urgent since stakeholders in many guises – government, shareholders, suppliers, and employees – needed greater faith in the quality of corporate reporting in the UK.
Kingman’s report was greatly applauded as setting the right direction. The FRC was too weak for the modern world. A new body with more authority to police audit standards and competition, to be called the Audit, Reporting and Governance Authority (Arga), was necessary. Two additional reviews concurred, a white paper followed and the FRC began preparing itself for reinvention as Arga.
It is still mark timing. The Queen’s speech on May 10 downgraded audit reform to the status of the draft bill, contrary to a definitely-will-happen-in-this-parliament bill. Further delay is unacceptable. The FRC has indeed gotten tougher in the past couple of years, but just an act of parliament can implement many of the necessary reforms, such as authority to place large private companies (think BHS) under the audit microscope and statutory funding for the new body.
One cannot criticize Kwasi Kwarteng, the business secretary, who seems to be keen to get down to business. However, it is notable that he is the fourth holder of his position since Kingman’s report was published, which indicates how long the Arga saga has persisted.
The current excuse, it is said, is that audit reform does not electrify voters in the way that, say, the creation of a football regulator does. That excuse is weak.
