Image Credit: Andrew Parsons
With oil titans Shell and BP announcing profits of nearly £24 billion in 2021 whilst people and businesses alike are struggling to pay their energy bills, questions as to whether or not they are entitled to profits that some MP’s and unionists argue were an unjustified windfall are beginning to arise.
But why have oil and gas companies made so much money? The answer to this is fairly simple: war and Covid. Energy prices have surged since the pandemic as demand has increased. Readers will likely be aware of the effects the fuel poverty crisis has had on the public (either by way of research or how their pockets are feeling) as well as the actions of Rishi Sunak and the government in response to alleviate this pressure. However, readers may be less familiar with Russia's heavy involvement in the conventional energy structure, who the big industry players are, and why the war with Ukraine is linked to booming profits in the oil and gas industry.
Since the start of the war, Russian banks, Vladimir Putin, and his cronies have all faced heavy sanctions from the West. This includes their removal from the Swift banking system as well as asset freezes to make the conflict with Ukraine less economically viable. However, not too long ago, Russian involvement in western industries (by the UK in particular) was incentivised through the ‘Golden Visa’ scheme, introduced in 1994. This scheme was a fast track way of getting citizenship for any international with a spare £1 million they could invest in companies and British infrastructure. Once obtained, the scheme grants applicants residency rights by way of law.
Since the start of the war with Russia, the ‘Golden Visa’ scheme has come under heavy fire due to its oversight, which has allowed oligarchs to breeze past the ordinary citizenship process. The effect this has had on British real estate, in particular, cannot be understated. It has essentially resulted in an estimated £1.5 billion being invested into the property market by oligarchs, becoming inaccessible due to the sanctions.
So how are oil and an oligarch tax relevant in all of this? Politicians such as Lib Dem leader, Ed Davey, are calling for UK household energy bills to be paid for by seizing Russian assets (the property) through the ‘Golden Visa’ scheme. This would be done by way of Unexplained Wealth Orders. Unexplained Wealth Orders or ‘UWO’s’ are used by the courts to seize assets bought in connection with crime. Introduced in 2002, the implementation of UWO’s shifted the burden of proof to the lower ‘balance of probabilities’ used in civil trials. The harder to prove, ‘beyond reasonable doubt’, normally employed in criminal trials, would become the standard for seizing an individual's assets. Now, with many agreeing that Russia is in breach of international law, having committed war crimes during its conflict with Ukraine, it has been suggested that the proceeds from the assets could be used to pay for people's energy bills, simply put.
An alternative solution, or something that could be used in conjunction with UWO’s, that might alleviate pressure on people's wallets, would be a ‘windfall tax’. This is a one off tax imposed on an industry in response to an extraordinary increase in revenue, for actions they are not responsible for i.e. the surge demand for oil and gas post Covid. The formalities of such are the subject of heated debate. With Labour proposing a 10 percent increase on corporation tax for North Sea oil and gas producers, hitting companies like the mentioned BP and Shell where it hurts might be achievable. As it stands, the UK government has been hesitant to introduce measures that jurisdictions such as Spain have adopted, by pointing out that producers in these sectors already pay higher tax rates than those in other areas. The government’s stance seems to be that it would be unfair to tax the companies even more than they already are. Sunak has been particularly vocal about his Thatcherite low tax policies, aiming to give the argument credence. The energy companies themselves have even stated that this may further discourage investment into their companies at a time when focus should be on shifting from fossil fuels to greener, renewable energy sources.
It seems there are ultimately two ways in which politicians could help people heat their homes: either by seizing property bought with Russian ‘dirty money’ via UWO’s, or by the introduction of a ‘windfall’ tax. The general consensus of the public is that they aren’t too fussed where the money comes from, they just want a heated home.