Record Shell profit spurs windfall tax calls

Shell was last night fighting calls for a windfall tax as it recorded the biggest profits by a British company. The £9.4bn earned in 2004 from oil and gas - £1m an hour and equal to nearly 1% of the Britain's GDP - came after the prices of UK domestic gas, electricity and petrol soared.

Consumer groups, environmentalists and trade unions described the figures as "obscene" but Shell warned it could cut investment in the North Sea if there was any attempt to tax it more heavily.

Windfall taxes were last imposed in 1997, after the incoming Labour government included a proposal to tax utility companies in its election manifesto. The £5.2bn was earmarked for the New Deal welfare-to-work programme.

Calls for one-off taxes on other companies are likely to increase in the next few weeks as many of Britain's biggest businesses report record profits. The banking group HSBC is predicted to match Shell's profits, while Britain's big five banks collectively will make £30bn - 16% more than last year. The five are HSBC, Royal Bank of Scotland, Barclays, HBOS and Lloyds TSB. In 2003 the Barclays boss Matt Barrett told a Commons select committee: "I don't think I know what excess profits means."

BP, meanwhile, will report nearly £9bn next week and its chief executive, Lord Browne, has described the company's cashflow as "astonishing". In April, Tesco will reach £2bn, the highest for a British retailer, and in the same month Vodafone is forecast to smash Shell's record by becoming the first British company to pass £10bn.

So far, the government appears to have set its face against further windfall taxes. Yesterday the economic secretary, John Healey, told MPs that companies should have to "pay a proper price" for the right to make money from North Sea oil reserves, but denied they would have to pay more than the £6bn already expected to be recouped for the taxpayer. "We have no plans to introduce a windfall tax on oil companies," he said.

The pressure on Shell was intensified by the sheer scale of its ready cash. It has £17.5bn in cash or equivalent, and now plans to hand up to half of it to its shareholders over the next 12 months. One of the biggest beneficiaries will be UK pension funds, the main owners of most British companies. They would be deeply opposed to any government move that would divert cash from their coffers.

The enormous earnings of Shell and BP are mainly the result of soaring crude oil prices, which have rocketed to nearly $50 (£27) a barrel. Rival ExxonMobil this week reported annual profits of $25bn (£13bn), the highest corporate profit in history. Thanks to soaring demand from China, global oil use rose 3.3% last year, the fastest growth since 1976.

Shell's chief executive, Jeroen van der Veer, said the performance "demonstrates our financial and operational resilience" after a turbulent year. An embarrassing oil reserves scandal claimed the scalps of three of the most senior directors.

But Tony Woodley, general secretary of the T&G union, argued that the level of profits raised questions about pay for Shell workers plus the price of fuel for motorists as well as industry. "Such levels of excess are, quite frankly, obscene," he said. "With our pensions in crisis, these profits are 9.4bn extra reasons for a windfall tax. The government should grasp the nettle so everyone can benefit."

Tony Juniper, executive director at Friends of the Earth, said it was ironic that the Shell figures were being reported just as scientists met in Exeter to discuss global warming. "Huge profits like this are only possible because Shell and other oil companies are able to burden the rest of society with the pollution and climate change that is the inevitable consequence of their business operations," he said.

Energywatch, which represents electricity and gas consumers, said business and domestic users were having to pay an extra £5bn to oil and gas producers this year. "Surely it is only a matter of time before the reasons behind these vast profits are exposed," a spokesman said.

The question of windfall taxes was raised a week ago. Martin O'Neill, chairman of the parliamentary trade and industry select committee, which is investigating a gas price bubble, said after a clash with BP and other energy executives that he was "not against" a tax.

But Shell's executive director, Malcolm Brinded, said yesterday: "There are a quarter of a million jobs in the UK dependent on continued investment in the North Sea. That [investment] can happen but if there is an imposition of a windfall tax, it will, as tax changes have done in the past, knock confidence, knock the investment and in the end damage both business and the interest, in terms of fiscal income, of the UK."

Four ways to limit the big earners

1 Windfall tax. The simplest method - a one-off charge which could be earmarked for a special project. Would be viewed as punishing success.


2 Increase in company tax rates. UK corporation taxes are the lowest in western Europe. But an across-the-board rise to hit just a handful of companies would be a case of sledgehammers and nuts.


3 New tax band for "super profits". Would be an extension of current practices, but would encourage tax avoidance schemes and, in the eyes of company bosses, drive businesses abroad.


4 Greater regulation. Would help to define excess profits. But expensive to administer and probably futile.