After energy prices skyrocketed last year due to Russia’s invasion of Ukraine, oil and gas megacorporation, Shell, claimed to outperform their annual earning records. Reports say that in 2022, the company’s profits reached $39.9 billion (£32.2 billion), definitely an all-time high and a double from the previous year.
The Shell group of companies employs more than 80,000 people in over 70 countries. They utilize cutting-edge technology and innovative ideas to create a more renewable energy future. Despite their recent success, they received major backlash for their ‘outrageous’ revenue in the past year. This received a mix of opinions both from experts and critics.
Companies are under great pressure to increase their tax payments as people struggle to keep up with rising costs. And after Covid lockdowns were lifted, energy costs started to rise. Then the crisis in Ukraine in March of last year caused a significant spike in oil prices. Since oil and gas prices increased in response to the invasion of Ukraine, energy companies have enjoyed extraordinary profits out of this circumstance.
After the Russian invasion, the price of a barrel of Brent crude oil jumped to about $128, but it has since dropped to around $82. The price of gasoline likewise quickly increased, then eventually decreased. Although this has resulted in record profits for the energy industry, it has also contributed to steadily increasing costs for consumers.
The “Energy Profits Levy” is a dividend tax on unusual revenues of companies according to the UK government last year as part of its proposal to lower gas and electricity prices. Despite the changes, Shell has stated that it does not anticipate paying any UK tax this year since it can deduct decommissioning expenses and have investments in UK projects from its income.
The company recently disclosed that its windfall tax for the United Kingdom is at $134 million for 2022 and that it anticipated paying more than $500 for the same in 2023. Although this appears to be a very modest percentage of Shell’s overall income, it is understandable since the rest of the company’s earnings and related taxes are generated in other countries.
The opposition parties alleged that the government was just letting energy firms off the hook by ignoring Shell’s outrageous earnings. In addition, they demanded that April’s planned hike in the energy price cap be canceled. Others, point out that Shell is a UK-based company and that it has been paying more to its shareholders than it has been spending on renewable investments.
Ed Miliband, the Labours’ shadow climate change secretary said, “As the British people face an energy price hike of 40% in April, the government is letting the fossil fuel companies making bumper profits off the hook with their refusal to implement a proper windfall tax. Labour would stop the energy price cap going up in April because it is only right that the companies making unexpected windfall profits from the proceeds of war pay their fair share.”
The news has put pressure on Rishi Sunak and Jeremy Hunt to improve funding through oil and gas revenues.
Liberal Democrat leader Ed Davey also said, “No company should be making these kinds of outrageous profits out of Putin’s illegal invasion of Ukraine. They must tax the oil and gas companies properly and at the very least ensure that energy bills don’t rise yet again in April.”
Also, Paul Nowak, the general secretary of the Trades Union Congress, has encouraged ministers to increase the windfall tax. He said, “The time for excuses is over. Instead of holding down the pay of paramedics, teachers, firefighters, and millions of other hard-pressed public servants, ministers should be making big oil and gas pay their fair share.”
Downing Street has expressed its “absolute” understanding of the public’s outrage at the unprecedented earnings. But according to an official, there is no indication that there are plans to increase the windfall tax.
After being questioned by reporters, the prime minister’s spokesperson stated that any concerns regarding possible adjustments should be sent to the chancellor.
An official said the government “is ready to take action” if the decreased wholesale energy costs will not be reflected at petrol pumps. The government strives to limit gas and electricity bills so that a regular household using average amounts of energy will pay £2,500 a year. This though is still more than half compared to what it was before the war between Russia and Ukraine. Furthermore, reports say that by April, the threshold is expected to rise to £3,000.
The UK government imposes a windfall tax exclusively on revenue gained from oil and gas production within the country. There was a 25% rate before, but now it’s up to 35%. Oil and gas companies have to pay a 30% tax on their profits and a 10% surcharge on top of that. With the new windfall tax, their tax rate is now at 75%.
Nonetheless, businesses can minimize their tax liability. They can write off expenses, like the removal of oil platforms from the North Sea. This only means that for the past years, huge companies like BP and Shell have been paying little to no taxes in the UK and that is unacceptable for the critics.
Shell’s annual earnings were up significantly from 2008 when it broke a previous record. The business also announced a $6.3 billion dividend payment to stockholders in the fourth quarter of 2022. In addition, they are planning a $4 billion share buyback.
Wael Sawan, the CEO of Shell, recently said that we live in “very challenging times” because of “rampant inflation around the world.” But according to Sawan, Shell was only doing its role by financing renewable technologies.
In addition to the subject, CFO Sinead Gorman says that Shell paid more than $13 billion in taxes around the world in 2022. Along with making up 11% of shipments of liquefied natural gas into the European Union. This somehow helped alleviate the supply problems caused by the war in Russia.