‘We’re backing Britain,” declared BP’s chief executive, Bernard Looney, on Tuesday, which was a cuter spin on record quarterly profits of $6.2bn (£5bn) than his boast last November about running “a cash machine”. A debate about windfall taxes has raged ever since last autumn’s remark, which, note, was made when oil prices were $20-a-barrel lower than today’s.
But here’s a key point about BP’s plan to spend “up to” £18bn in the UK by the end of the decade in a programme spanning North Sea oil and gas, offshore wind, hydrogen facilities, electric vehicle charging points and carbon capture projects: it’s not new. The collection of projects is merely a tally of previously announced plans, some of which were backed even when BP’s cashpoint was suffering a relative splutter. The big offshore wind programme in the Irish Sea, for example, was unveiled 15 months ago.
At the margin, some North Sea oil and gas investments may have been accelerated, but it’s hard to be precise. The big picture is that BP has carefully shifted over time from investing about 10%-15% of its global capital expenditure in the UK, which was the approximate position over the past decade, to spending roughly 15%-20%. The change makes sense. In the renewables arena, where more of the cash is going, the UK’s tax and incentive set-up is seen as more attractive than that of international peers.
Thus, from a purely economic perspective, BP’s £18bn parade of projects shouldn’t change the windfall tax debate one jot. The investments would happen anyway – a point Looney more or less conceded.
Indeed, just by considering the back-of-the-envelope arithmetic, one can see why the financial dial wouldn’t move. The little secret about the Labour party’s version of windfall tax is that it is very modest. The formula imagines an increase from 40% to 50% in the tax rate on North Sea oil and gas profits, which in BP’s case would merely turn an expected £1bn tax bill for the relevant assets this year into one of £1.25bn.
An extra £250m would not explode BP’s precious “long-term financial framework”, which has already withstood the mega Rosneft write-off and will stay pay investors £4bn in dividends this year, with possibly the same again via share buybacks. BP’s 10-year investment plans would not be upset; pensioners and pension funds would not be impoverished; life would go on.
By the same token, though, Labour should stop giving the impression that a windfall tax is some form of cure-all for the crisis in consumers’ energy bills. On the party’s original January formulation of its tax, the projected total from across the entire North Sea industry was just £1.2bn. Even if one assumes that a higher oil price (and thus corporate profits) would add a bit, we’re not talking about game-changing sums. For context, it would cost £10bn to give 10m lower-income households a £1,000 saving on their bills for a single year.
In the end, the politics of a windfall tax will probably hinge on how long oil remains at $100-plus a barrel, and how long an effective “Ukraine war premium” persists, as argued here last week. After a while, the charge becomes hard to resist. The view here is that it would be reasonable already for the Treasury to claim a few extra quid in the interest of fairness. But let’s not pretend that a windfall tax would make the energy crisis go away.
Ping An move puts yet more strain on HSBC’s double life
As with most things Chinese and corporate, it’s hard to know if local insurer Ping An has been prodded by Beijing to lobby HSBC to break itself up. Either way, this show should run a while. First, because Ping An is a serious shareholder with a 8% stake. Second, because there’s a good question at the heart: would HSBC be better off if it split its Asian and western operations?
As it is, HSBC’s double life as a UK-regulated bank that makes most of its money in Hong Kong has rarely looked so challenged. Executives have to engage in verbal gymnastics every time Beijing launches another crackdown on dissidents in Hong Kong, for example. Further deterioration in US-China relations may eventually make the act impossible to perform.
On the other hand, Ping An’s apparent belief that a liberated Asian operation would enjoy a higher stock-market rating looks questionable; it ain’t necessarily so. But the Chinese group will perform a useful service if it makes HSBC’s chairman, Mark Tucker, and its chief executive, Noel Quinn, sing for their supper. The bank has been a disappointment to its shareholders – eastern and western alike – for years.
